Sasol Ltd., the South African chemicals and fuel maker, called off a potential US$2B share sale and announced first-half profit more than tripled. The shares jumped to the highest in a year.
The company said it’s raised enough cash through asset disposals and cost savings to reduce debt and avoid a rights offer.
“A decision was made not to pursue a rights issue given the current macroeconomic outlook, and the significant progress made on our response plan initiatives,” Sasol said in a statement Monday. “The balance sheet deleveraging pathway will continue to be prioritised to ensure that we operate within our financial covenants.”
Speculation over a share sale began about a year ago amid fallout from Sasol’s Lake Charles project in Louisiana, oil prices at half their current levels, and Moody’s Investors Service’s decision to cut the company’s credit rating to junk.
The company has been reducing debt through an accelerated sale of assets, most notably by offloading a 50% stake in its base-chemicals business at Lake Charles to LyondellBasell Industries NV for US$2B. Divestment proceeds have reached US$3.3B to date.
Also read: Sasol to invest US$760M in Mozambique
Total debt was 126.3 billion rand (US$8.5B) at the end of December, compared with 189.7 billion rand six months earlier. Sasol said macroeconomic volatility may continue to have an impact on its covenant levels.
First-half attributable earnings more than tripled to 14.5 billion rand. The dividend remains suspended, Sasol said, citing a prolonged outlook of economic uncertainty.
The company is transitioning to a business model that consists of a global chemicals business and a southern African energy business, designed to “deliver attractive returns” even in a US$45-a-barrel oil-price environment. Targets include cost reductions and gross margin improvement.
Sasol also started a process last year to sell its 50% share in the 865-kilometer (538-mile) Republic of Mozambique Pipeline Investment Co. natural gas pipeline, which remains “well underway.”
The board approved a final investment decision on the production sharing agreement for a gas power project in Mozambique.
By Paul Burkhardt
Source: Bloomberg via Club of Mozambique