Embattled chemicals group Sasol, whose share has lost almost 90% of its value so far in 2020, was cut deeper into junk status by Moody’s Investors Service on Tuesday and is under review for a further downgrade.
Moody’s on Tuesday cut Sasol to Ba2, the second rung of noninvestment grade, having cut it to junk status earlier in March.
“Sasol has been caught at the intersection of a series of credit negative developments, including a significant deterioration in the operating environment from a combination of the collapse in oil prices, widening impact of the coronavirus outbreak and weakening of SA’s sovereign credit quality,” Moody’s said.
This came at a time when its balance sheet has reached peak gearing because of Sasol’s Lake Charles Chemicals Project related capital spending, the agency said.
The project in Louisiana in the US has run 45% over budget and seen the company struggle to keep up with payments on its R121bn debt. The group is seeking to cut costs and is considering asking shareholders for $2bn (R36bn).
S&P Global Ratings has also revised Sasol’s rating to BB, or junk status, with Sasol saying on Tuesday the downgrades would add an additional $10m in finance costs a year.
Sasol said on Tuesday it continued to prioritise stabilising its balance sheet, and had put in place oil hedges for 80% of its fourth-quarter synthetic fuels production.
“This is an unprecedented time in the history of Sasol and the world,” said CEO Fleetwood Grobler. “We will continue to take decisive action to help safeguard the health and wellbeing 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,” he said.
In morning trade on Tuesday Sasol’s share price had gained 6.16% to R33.44. At the same time, Brent crude oil had jumped 17.85% to $26.80 a barrel, amid reports the US and Russia were seeking to co-operate on stabilising energy prices.