Synthetic fuel and chemicals group Sasol has had its long- and short-term ratings affirmed at BB by S&P Global with the ratings agency lifting the outlook on the company’s debt to positive, saying it is in a far better position now than it was when the rating was last reviewed in November 2020.
In a report released on Monday evening, S&P said Sasol had improved its fund-to-debt ratio to 36% in its latest financial year from 13% previously.
The improvement was “driven by significant debt reduction using asset sale proceeds and stronger cash flow generation on the back of supportive market conditions”, S&P said.
“Sasol restored significant headroom to its financial profile, which had eroded from 2017 due to cost overruns on construction of its US-based Lake Charles Chemicals Project and challenging market conditions prior to and during the [Covid-19] pandemic.”
The agency said its assessment had taken into account Sasol’s “exposure to higher climate change risk in the oil and gas industry through its energy segment, and we revised up our liquidity assessment to strong” after it had “restored covenant headroom comfortably above 30%”.
It said the positive outlook indicated the rating could be upgraded within the next 12 months if Sasol maintains its ratio of funds from operations to debt above 30%.
Sasol has made great strides since the start of SA’s hard lockdown in March 2020, when oil prices briefly went into negative, with the company going from one of the darlings to one of the dogs of the SA investment landscape as crippling debt and low oil prices pushed it to the point that it seemed a certainty it would have to tap shareholders for cash just to keep going.
Its share reached a closing low of R21.88 on March 23 2020, after peaking at about R650 in 2014. At Monday’s close, it was up 1.28% to R278.85.
With Andries Mahlangu
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