Sasol’s Call Is ‘Key Catalyst’ for Stock Down 80% in Four Days
Sasol’s Call Is ‘Key Catalyst’ for Stock Down 80% in Four Days
Sasol Ltd. is in a “precarious position,” with a stretched balance sheet that means it’s unlikely to be able to cope with sharply lower oil prices for long, JPMorgan Cazenove said, noting that a March 17 conference call looms as a key catalyst for the South African fuels and chemicals maker’s shares.
Sasol postponed the call, to discuss responses to Moody’s Investors Service cutting its credit rating to junk and measures to protect the balance sheet, as oil prices crashed at the start of this week. What happens to the stock next hinges on whether Sasol presents cost-savings plans and says it has won more time from banks over its debt, JPMorgan’s Alex Comer wrote in a note to clients.
There’s a high probability that Sasol will breach the covenants agreed with its lenders, but the most sensible option for banks would be to give the oil company six months to improve its situation, rather than call in their loans, Comer said. It’s possible, but unlikely that Sasol will go bankrupt. The market appears to be pricing in an equity issue or a total collapse of the company, he said.
“Sasol is too strategically important for the South African government as a source of liquid fuels, taxes and high-paying jobs to be allowed to collapse,” the London-based analyst wrote. Government equity through state-owned fund manager, the Public Investment Corp., might be an option.
JPMorgan downgraded Johannesburg-based Sasol to neutral from overweight Thursday, slashing its price target for the stock to 93 rand from 280 rand. The shares slumped 29% to 37.24 rand, extending their slide in the past four days to 76%. The yield on Sasol’s $750 million of notes due December 2028 jumped 137 basis points to a record 8.43%.
Sasol said in a statement, issued after the JPMorgan report, that at the prevailing rand oil price it will be within current covenant levels at June 30. It has cash and available facilities of some $2.5 billion and no significant debt maturities before May 2021.
The company is looking to boost income from disposals beyond its $2 billion target and in “constructive” talks with its lenders. It’s considering a potential equity issue, among other actions, and will update the market during Tuesday’s call, it said.
--With assistance from Lisa Pham.
To contact the reporter on this story: Paul Burkhardt in Johannesburg at pburkhardt@bloomberg.net
To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, John Viljoen, Antony Sguazzin
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