Sasol protects oil price from rock bottom pricing, says ratings will add $10m/y to finance costs

Sasol's Secunda plant

PETROCHEMICALS company, Sasol, said adjustments to its credit rating by S&P Global Ratings and Moody’s would result in an increase in some of its finance costs of about $10m (R178m) a year.

The ratings agencies have taken a dim view of the decline in the oil price and the impact of the COVID-19 pandemic, the full effect of which is an unknown.

“South Africa’s 21-day lockdown to contain the outbreak creates further uncertainty on near-term financial performance, while an extended lockdown beyond the original timeline could further affect performance,” the company said in a statement today.

S&P announced it had revised Sasol’s BBB- rating, which was affirmed on 7 March to BB, with a negative outlook, while Moody’s also announced that it has revised Sasol’s Ba1 rating to Ba2 and placed the company under review for a downgrade.

Sasol said, however, that its operations were largely unaffected so far by the virus as its operations, in South Africa in particular where a 21-day lockdown has been underway since March 26, were deemed essential services.

It added it had taken steps to minimise the impact of the lower oil price by reducing its exposure to additional short term pricing downside by means of a hedging programme.

“Oil hedges are in place for approximately 80% of Synfuels fuels Q4 FY20 production, at approximately $32 per barrel,” the group said. “Crude oil hedging execution will continue for the next 12 months, while US$/ZAR and ethane hedging programmes have been
executed for the next twelve month period,” it said.

“This is an unprecedented time in the history of Sasol and the world,” said Fleetwood Grobler, CEO of Sasol in an announcement. “We will continue to take decisive action to help safeguard the health and well-being of our employees and provide essential products to the many stakeholders that rely on us, while we reposition the business to enhance its long term future.”

Sasol said on March 17 it had set in motion plans to “reshape its balance sheet” through a combination of cost savings and capital cuts, asset sales and – depending on the success of the former two efforts – a rights issue of up to $2bn. All in all, the company could potentially generate $6bn in cash and savings.