Sasol aims for blue-chip status again
RESTRUCTURING: MANAGEMENT SPELLS OUT PLANS Bid to restore company as a bluechip investment.
Shareholders cannot complain that Sasol is keeping them in the dark. As promised, management hosted another of its investor updates to report on the progress of its recovery plan, with CEO Fleetwood Grobler and CFO Paul Victor discussing how things are going.
Grobler’s opening remarks are worth noting: “It was an extraordinary year. The crude oil price collapse could not have happened at a worse time for Sasol. It was our toughest year on record.”
The investor update follows the formal announcement earlier in the morning that most of the conditions for the sale of a 50% interest in a portion of the Lake Charles Chemical Project (LCCP) have been met and that Sasol will soon receive $2 billion (about R30 billion) cash to bolster its stressed balance sheet.
Sasol announced earlier that it would enter into a joint venture with LyondellBasell in respect of its base chemical business at LCCP which will result in the latter buying a stake of 50% in the unit.
The transaction was approved by shareholders at a general meeting recently, which gave rise to the establishment of the Louisiana Integrated Polyethylene joint venture which will be managed by LyondellBasell.
“Under the terms of the transaction agreements, LyondellBasell will operate the joint venture assets on behalf of the venture and market the polyethylene products on behalf of the two shareholders,” according to the announcement, which states that the proceeds of about $2 billion will be received in the next few days.
This is but part of Sasol’s ongoing restructuring process.
Asset sales
Grobler said the sale of assets slated for disposal is going well, actually ahead of schedule.
The target to raise in excess of $3.5 billion in asset sales has been largely achieved, with agreements in place for the majority of the disposals.
“We are moving away from businesses where we do not have a competitive advantage,” said Grobler.
Once again, Grobler outlined the need for change. The first goal is to stabilise Sasol financially in the short term by reducing gearing and to restructure the group to operate competitively in a volatile macro-economic environment that usually translates into low oil prices.
Resilience
While Sasol’s stated objective is to position the business to be “resilient” in an environment of an oil price around $45 per barrel, the latest presentation creates the impression that the Sasol of the future will be quite happy there.
Management said in the presentation that the SA operations of Sasol 2.0 will be breaking even at an oil price of $30 to $35 per barrel and an exchange rate of R15.70 per dollar.
Clear road map
Victor put a clear road map on the table: This year is the year to reset the balance sheet, 2023/24 is the year to drive free cash flow and reduce debt to two times net debt to Ebitda, and 2025 and beyond is the time to enhance shareholder returns.
While the option of a rights issue is still on the table, the two top managers at Sasol were even talking about dividends in a few years’ time. They also mentioned that the new Sasol must be in a position to consider new investments and enhance shareholder returns by way of a share buy-back.
It is very interesting that Sasol management is upbeat about the prospects. The most noteworthy is the aim to restore Sasol as a blue-chip investment.
Sasol is one of the popular shares in SA, with most unit trusts and pension funds owning some.