JOHANNESBURG – Petrochemicals giant Sasol became the biggest South African casualty of the collapse in the oil price, plunging 46.56 percent to R85.35 yesterday following failed talks between Russia and the Opec alliance at the weekend.
Brent crude oil prices yesterday crashed 31 percent to $36.30 a barrel, the lowest level since 1991, amid an oil bloodbath prompted by Saudi Arabia’s decision to slash its oil prices over the weekend by about 10 percent after Russia walked away from the negotiating table.
Russia on Friday refused to join Opec’s production cut as the coronavirus continues to ravage the global economy and, with it, demand for oil, pitting Russia against Saudi Arabia.
Analysts said Sasol’s share price plunge was the latest blow for the group, whose stock has slumped 78.59percent in the past year alone.
International rating agency Moody’s on Friday cut Sasol’s credit rating to junk on concerns that its debt level for the US-based Charles Lake Chemicals Project (LCCP) was too high.
Sasol had long-term debt of R121.28bn at its half-year to the end of December, up 6.3percent from the previous comparative period. Sasol last month said protecting the balance sheet remained an important priority.
It said on Friday that it had several proactive actions, including a measured financial risk management programme to hedge oil and ethane commodity price and exchange rate exposures.
However, Michael Treherne, a portfolio manager at Vestact Asset Management, said Sasol’s shares slumped because shareholders were worried that the company would have to announce a rights issue from shareholders to help reduce their debt levels.“Equity raise would dilute current shareholders, which is not good for them.
“It depends how long oil stays at these depressed levels. If it is only temporary, then Sasol should be fine. If we stay at these low levels, it will have a significant impact on Sasol’s profits,” said Treherne.
The LCCP project has been a major disappointment for Sasol after its costs ballooned to between $12.6bn and $12.9bn from an original $8.1bn estimate in 2014.