Sasol’s $2bn Lake Charles deal a positive move, says ratings agency

The $2bn sale of a 50% stake in three units of Sasol’s Lake Charles plant in the US is a positive development that will help reduce the SA chemical and energy company’s debt levels, ratings agency S&P Global Ratings said on Friday.

S&P has a BB rating on Sasol with a negative outlook. This remains unchanged.

Sasol incurred a large overrun in the cost of the Lake Charles project in Louisiana, with costs ballooning to $12.8bn from $8.9bn when it was launched in 2014. The higher project costs contributed to higher debt levels in the JSE-listed Sasol at a time when revenues became constrained.

Sasol has embarked on a programme of asset sales, cost reductions and is considering a rights issue of up to $2bn to repair its balance sheet.

The sale was unveiled on Friday morning when Sasol said it had entered into a 50/50 joint venture with Houston-based LyondellBasell, one of the world’s largest chemicals and plastics companies, at three of the seven operating units at Lake Charles.

“We view the transaction as supportive of Sasol’s strategic pivot from commodity to speciality chemicals, and its focus on net debt reduction, but note that it may reduce Sasol’s geographical diversification,” S&P said in a media release.

Sasol will retain the other four units at Lake Charles, which generate speciality chemical products, while the other three units supply commodity chemicals, something LyondellBasell specialises in producing and selling.

Speciality chemicals are high-value, low-volume products compared to the high-volume, low-value commodity chemicals. The three units, which include a new ethane cracker, produce ethylene and polyethylene.

Sasol may consider the sale of the remaining 50% stake in about two-years’ time, CEO Fleetwood Grobler said on Friday.

S&P noted that Sasol had, by the end of its 2020 financial year in June, identified assets held for sale worth about $4.8bn. Of these, it has agreed the sale of two for a value of $2.4bn. Both these deals should be concluded before June 2021.

“While a successful conclusion of the announced asset sales will accelerate deleveraging, a recovery in Sasol’s credit metrics will also be predicated on improved cash generation in a more supportive oil and chemical price environment,” S&P said.

“Conservative financial policy and cash flow management, together with strong banking relationships, continue to support Sasol’s liquidity.” 

Sasol management said on Friday that the size of the rights issue will be determined by the board in February and much will depend on how much money is raised in asset sales and whether it is on track with its cost-savings programme to take $2bn of expenses out of the business by June 2021.

Much also depends on oil and chemical prices and what the debt level will be in the company by the time the board considers the size of the rights issue, or if there even needs to be one, said CFO Paul Victor.

seccombea@businesslive.co.za