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Sasol Plunges by Record as Oil Crash Adds to Debt, Cost Woes

Sasol Plunges 50% as Oil’s Crash Adds to Debt and Cost Woes

(Bloomberg) --

Sasol Ltd. shares plunged by a record in Johannesburg Monday as the crash in global oil prices added to concerns around the company’s debt levels and cost overruns at a U.S. plant.

Sasol fell as much as 51% and traded 47% lower as of 4:19 p.m., heading for the weakest close since December 2003. The sharpest slump in oil prices since 1991 hit the South African fuels and chemicals producer just days after Moody’s Investors Service downgraded it to junk, citing high debt and spending on the Lake Charles Chemicals Project in Louisiana.

“This oil price crash has come at the absolute worst time for Sasol,” said Seleho Tsatsi, an analyst at Anchor Capital in Johannesburg. “The market is concerned about the company’s balance sheet.”

Sasol Plunges by Record as Oil Crash Adds to Debt, Cost Woes

Shares in major global oil companies fell Monday, but the decline in the world’s biggest producer of liquid fuel from coal was more pronounced. Sasol has dropped about 70% this year and its 52% retreat so far in March is the worst performance among the 1,401 members of the MSCI Emerging Market Index.

The energy company’s borrowing costs have surged. The yield on $750 million of notes due 2028 climbed for a fourth day, jumping 93 basis points to 6.61%, the highest since January 2019. The notes have made a negative return of 3.6% this month, falling far behind the 1.1% gain in the ICE Bank of America Merrill Lynch Emerging Markets Corporate Plus Index.

Sasol Plunges by Record as Oil Crash Adds to Debt, Cost Woes

While Sasol has assumed oil prices staying at $50 to $70 a barrel for its outlook projections, Brent plumeted to as low as $31.02 Monday. The Johannesburg-based company’s half-year earnings already showed the effects of a 9% decrease in the rand-per-barrel price of crude oil and lower refining margins due to weaker demand during the period, the company said in a Feb. 24 results statement.

Moody’s said last week that Sasol’s free cash flows over the next two years won’t materially reduce the company’s 138 billion rand ($8.5 billion) of debt, accumulated mostly because of the LCCP. The latest slump reduced Sasol’s market value to about 55 billion rand.

Sasol “has a significant U.S. dollar-denominated debt load that it needs to deal with,” Tsatsi said by email. “Unless we see a significant recovery in oil prices soon, there is a high likelihood for Sasol to take measures to address its balance sheet.”

Sasol Plunges by Record as Oil Crash Adds to Debt, Cost Woes

--With assistance from Colleen Goko and Filipe Pacheco.

To contact the reporters on this story: Adelaide Changole in Johannesburg at achangole2@bloomberg.net;Paul Burkhardt in Johannesburg at pburkhardt@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, John Viljoen, Tom Lavell

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