Sasol Ltd. started a hedging program as it looks to tackle plummeting prices and a crash in demand for its oil products and chemicals. The shares surged as much as 24%.
It hedged about 80% of its synthetic fuel production in the fourth quarter at about $32 a barrel, the South African oil and chemicals producer said Tuesday. The company will continue to hedge crude for the next 12 months.
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The move follows credit rating downgrades by Moody's Investors Service and S&P Global Ratings. The cost of some of Sasol's floating-rate debt is partly linked “to our credit rating and the revised rating profile will therefore result in an increase in finance costs from existing facilities” by approximately $10 million a year, it said.
The stock gained 19% as of 2:35 p.m. in Johannesburg, after rising to the highest level in 12 days. The company has had a torrid year so far with the shares slumping 88% as earlier cost overruns and delays at its Lake Charles chemical project in the U.S. were made worse by lower oil prices and the Covid-19 pandemic.
Sasol is considering the option of a rights issue in order to meet debt obligations. The company plans to continue running its South African operations for the duration of the country's 21-day virus lockdown. But some plants will be required to reduce throughput, or potentially shut down following lower demand, it said.
It has about $2.5 billion of liquidity.
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