Sasol drops rescue plan for BEE scheme
The fuel company says it will not sell about R13bn of shares to meet its obligation to repay debt owed by a black investor group and is considering other options
The Sasol share price experienced one of its strongest trading days on Monday following the board’s announcement that it was abandoning plans to issue 43-million new shares to rescue the Sasol Inzalo black economic empowerment (BEE) scheme.
The Sasol share price closed almost 3% firmer at R396.26.
The decision to scrap a proposed share placement was forced on the company after “extensive engagement with shareholders”.
One BEE analyst, who described the dramatic decision as a “slap in the face for Sasol”, said it made no sense to abandon the planned orderly share placement exercise. The analyst said the alternative could be the disorderly sale of the 25-million Sasol shares that underpinned the Inzalo scheme when the scheme terminated in September 2018. A disorderly sale could do more damage to the Sasol share price.
The special purpose vehicles (Fundcos) created to manage the scheme on behalf of tens of thousands of black investors will be forced to sell the shares to meet the funding requirements for the scheme unless there is a dramatic and unexpected spike in the share price before the closing date. The BEE investors are looking at a loss of about R80 a share on the current Sasol share price.
Sasol’s plan was to issue up to 43-million shares and use the proceeds to repay the BEE funders and thereby keep the 25-million Sasol shares underpinning Inzalo from flooding onto the market. With that plan scrapped it now looks as though Sasol might attempt to seek funding from external sources.
In Monday’s announcement, Sasol said it was “now undertaking to explore in consultation with the external banks and Inzalo Fundcos different funding options to settle the relevant financing obligations”.
It said it wanted to mitigate the amount of shareholder dilution while maintaining its investment grade credit rating.
“Speculation is that foreign shareholders objected vociferously to a plan that would have diluted ordinary shareholders by as much as 6%. It’s a bit embarrassing for Sasol but at least management took on the issue 12 months ahead of the deadline so they have some lee-way, unlike MTN, which made a complete mess at the last minute,” said the BEE analyst.
On Monday, Sasol was forced to announce the reversal of a proposal disclosed to shareholders just two weeks earlier, which would have seen it undertake an accelerated book-build of up to 43-million Sasol shares. A Sasol spokesman said the group would know only between June and September 2018, when the schemes terminated, exactly how much money would be needed to cover the shortfall. “How much is needed will depend on the Sasol share price on the day of closing.”
At the current share price the proposed 43-million shares would raise almost R17bn.
The dismal performance of the Sasol BEE schemes, which were launched in 2008, reflects the dramatic reversal of the oil price over that period. In 2008, oil was trading at about $100; it is now trading at about $50.