(Bloomberg) -- Sasol Ltd. may be able to pay off more than half its $10 billion debt burden without resorting to a rights issue, though the challenge is heightened by a coronavirus-induced demand slump and low oil prices.
The South African fuel and chemical maker is looking to repay “at least $6 billion” by the end of its next fiscal year in June 2021, and has warned it may need to enact the country's biggest rights issue in two decades to achieve the goal.
Before making a final decision however, the company will focus on conserving cash and asset sales, Chief Financial Officer Paul Victor said on a Tuesday conference call.
“Before you issue any equity, you need to look at your asset portfolio,” the CFO said. A potential sale of part of Sasol's base-chemicals business in the U.S. may raise enough of the required amount, he added.
Sasol is trying to recover from a damaging series of events, including the escalation of costs at its Lake Charles chemicals project in Louisiana and a sustained slump in crude oil that has traded below its lowest settlement price since 2003. Moody's Investors Service downgraded the company to junk, and the shares have been in freefall.
Volatile Trading
The shares gained as much as 17% in volatile trading Wednesday that saw them drop as much as 35%. Sasol was 5% higher as of 4:19 p.m. in Johannesburg, trimming its plunge this year to 87%.
A planned asset-disposal program will focus on the U.S. operations, and Sasol will consider partnerships for base-chemical assets comprised of ethylene crackers and a polyethylene plant, Chief Executive Officer Fleetwood Grobler said on the same call.
A rights issue could follow if that doesn't yield enough cash, but the second-choice strategy is threatened by a protracted global economic slowdown driven by the coronavirus outbreak and the potential for another ratings downgrade.
“Our approach to all this will be is to see what progress we're making with our cash-flow initiative,” Victor said. “We're very sensitive to the fact that an equity raise or potential equity raise is really, really the last resort for us.”
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