In yet another shock to investors, Sasol delayed the release of its full-year earnings report by a month to provide time for the completion of a probe into cost overruns and start-up delays at its near-R200bn Lake Charles chemical plant (LCCP) in the US.
In reaction, the Sasol share price tanked as much as 16% on Friday, before recouping most of the losses to close 4.7% lower at R265, wiping off more than R8bn of shareholder equity.
Less than a year ago, the stock fetched R580.
The plant in Louisiana, which will produce chemicals used in industries such as packaging, detergents and adhesives, is expected to cut the company’s reliance on fuels, but it has encountered delays and cost overruns, prompting the board to set up an independent review to find out what went wrong.
A preliminary report on the many revisions of timelines and costs, which are now about 50% above the original budget, pointed to cost projection errors that needed to be taken into account in the preparation of its financial results.
As a result, the board of Sasol decided on Friday to delay the announcement of the results, which were scheduled to be issued on Monday, until the completion of the review and external audit.
Sasol spokesperson Alex Anderson said on Friday that the previous chemical plant project management team "did not have adequate segregation of duties and failed to engage the wider financial organisation to verify the accuracy of their forecast" for costs.
Transparency
Sasol acknowledged that its internal cross-checks "were not robust enough", Anderson said.
"The previous LCCP leadership was not transparent in these matters, and the new LCCP leadership has been instrumental in identifying and remediating these issues."
Cost-projection errors were limited to LCCP. "Our group-wide financial controls are sound, and we have no concerns regarding the robustness of our financial reporting," said Anderson.
Sasol said that it is still confident that its recent guidance on earnings, along with an estimate that the LCCP project would cost between $12.6bn and $12.9bn, remained intact.
The company, which warned of lower earnings in July as it wrote down the value of assets in North America and Africa by R18.1bn, also disclosed that the launch of an ethane cracker at the LCCP was delayed by several days due to a technical glitch.
"The start-up has now resumed," Sasol said. The company said that it would provide an update by August 26.
PSG Wealth portfolio manager Schalk Louw said the share-price reaction on Friday showed that "the market is extremely worried" about Sasol.
It was possible that Sasol could join the ranks of the top-40 companies at which debt piles now exceed their market capitalisation, Louw said, citing Aspen Pharmacare as another company in that position.
Sasol’s current debt levels may be higher than the R131.6bn on its books at the end of December 2018, Louw said.
The company’s market value was R166bn on Friday.
Considering that the group’s income was also under pressure, particularly given the possibility of an economic recession, this was "not good at all" as the company may struggle to use earnings to pay down debt, he said. Louw said that he had been advising clients to wait for clarity and certainty before buying Sasol stock.
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