March 17, 2020 / 8:00 AM / 22 days ago

UPDATE 3-Sasol considers $2 bln rights issue to help steady balance sheet

* Sasol could issue as much as $2 billion in new shares

* Aims to raise $6 billion to strengthen balance sheet

* Sasol shares hurt by fall in oil price, COVID-19 impact

* Firm to sell assets and look at partner in U.S (Adds detail from call, CEO quote)

By Tanisha Heiberg

JOHANNESBURG, March 17 (Reuters) - South Africa’s Sasol said it could sell up to $2 billion of shares as it works to ensure it can pay its debt after an oil price slide and fears over the coronavirus outbreak last week sent its shares to a 21-year low.

The world’s top manufacturer of motor fuel from coal, which is battling high debt, the impact of the coronaries outbreak and falls in oil and chemical prices, said on Tuesday it aimed to generate $6 billion as it seeks to stabilise its balance sheet.

“We are confident that the combined package of measures will align cash generation of a competitive asset portfolio in a low oil price environment with our stakeholder commitments,” chief executive Fleetwood Grobler said in a conference call.

The petrochemicals group’s shares were down 15.06% to 38.00 rand at 1422 GMT.

Sasol said was also in talks with its lenders to make sure it has “adequate flexibility” on its debt covenants.

The company said it had liquidity of around $2.5 billion with no significant debt maturities before May 2021 and believed it could withstand recent market volatility in the short term.

Sasol shares hit a 21-year low last week after the fall in oil prices, raising concerns about its debt levels and forcing it to implement a plan to strengthen its balance sheet.

On Tuesday, Sasol said it had already entered into a stand-by underwriting agreement with BofA Securities, Citigroup and J.P. Morgan Securities for the plan to selling up to $2 billion additional shares to strengthen its balance sheet.

The rights issue, which could be the among the largest the country has seen in decades, is expected to take place after its 2020 results with the amount raised dependent on the progress Sasol makes in improving its balance sheet and selling assets.

“The immediate focus is on the actions to stabilise the company and protect the balance sheet so that the underlying value of the portfolio is not compromised, and instead the potential realised in the interests of all Sasol’s stakeholders,” Sasol said in a statement.

It said it would immediately target measures, which could include headcount cuts and a delay in paying some incentives, to deliver a cash improvement of around $1 billion by the end of June and another $1 billion in the 2021 financial year.

Sasol said it would also sell assets above its original target of $2 billion and was already in talks with a potential partner over its U.S. Base Chemicals assets, which includes its troubled Louisiana project, for an up to 50% joint venture.

Investors have been concerned by the company’s debt, largely due to delays and cost overruns at its Lake Charles Chemicals project (LCCP) in Louisiana, that forced its former joint CEOs to resign in a bid to restore shareholder confidence.

The project converts natural gas into plastics ingredient ethylene, and the overruns are expected to reach as much as $12.8 billion, up from a 2014 forecast of $8.9 billion.

Sasol said it will review its global cost competitiveness and business structure in an effort to ensure profitability in a sustained low oil price environment

But it was confident it could comply with covenant thresholds in its debt agreements at June, 30 2020 assuming a prevailing oil price of around 580 rand ($35) per barrel. ($1 = 16.5941 rand) (Reporting by Tanisha Heiberg; Editing by Kim Coghill, Louise Heavens and Alexander Smith)

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