Sasol responds to Covid-19 lockdown in South Africa

Sasol welcomes and fully supports the directives announced by the president, Mr Cyril Ramaphosa on 23 March to combat the spread of the coronavirus in South Africa including the three week countrywide lockdown which began on Friday, 27 March and will continue until Friday, 17 April.

Mr Alex Anderson, senior manager of Sasol’s group external communication, said in South Africa, Sasol’s products and services are classified as essential goods and services as per Annexure B of the Lockdown Regulations issued by the minister of Cooperative Governance and Traditional Affairs on 25 March.

Mr Anderson said: “Sasol plans to run its South African-based operations for the duration of the lockdown, and will work with the government to ensure business continuity and uninterrupted supply of fuels and chemicals in South Africa during this period.

“However, some plants will be required to reduce throughput, or potentially shutdown following lower product off-take by our customers due to the lockdown.

“Furthermore, some intermediate chemicals will be re-directed to the production of products where demand is not impacted, to the extent possible.

“To this end, Sasol has formulated a special blend of alcohol products to address the increasing demand for sanitizer alcohol, and will expedite the production and availability of these critical products locally to help safeguard the health and wellbeing of South Africans.”

Sasol is collaborating with the South African Department of Trade, Industry and Competition and is also prioritising supply to government entities and other essential services to jointly combat the spread of the virus in South Africa.

According to Mr Anderson, the health and wellbeing of employees remains Sasol’s foremost priority and appropriate measures have already been taken to mitigate the risk of Covid-19 infection across all of Sasol’s sites.

These measures are being strictly enforced and closely monitored to ensure the ongoing safety of employees and the public.

Outside of South Africa, most of Sasol’s operations are continuing, with no significant impacts to North American Operations or its supply chain, or to the Lake Charles Chemicals Project construction to date. Chemical manufacturing is defined as a critical infrastructure sector, and therefore these projects are exempt from the stay-at-home order issued by the Louisiana government.

All Sasol’s European and Asian assets are currently in operation.

The Central Processing Facility in Temane, Mozambique, which supplies natural gas to Mozambique and South Africa, is not affected.

Sasol continues to work closely with suppliers and customers to ensure uninterrupted supply, where possible.

“The Covid-19 situation is highly dynamic and with infection rates continuing to increase in many countries, there is a risk of interruptions to production, construction and associated supply chains, along with a potential impact on demand and product pricing in some sectors.

“Shareholders are therefore advised that this could impact Sasol’s earnings for 2020 financial year.

“The impact on the business, suppliers and customers is being continuously evaluated and an update will be provided in the Q3 FY20 Business Performance Metrics report,” said Mr Anderson.

Sasol noticed that the credit rating agencies, S&P Global Ratings (S&P) and Moody’s have updated their credit rating assessments of Sasol in light of the impact of the Covid-19 pandemic on global growth and the volatility in the oil price.

S&P has announced that it has revised Sasol’s BBB- rating, which was affirmed on 7 March to BB, with a negative outlook, while Moody’s also announced that it has revised Sasol’s Ba1 rating to Ba2 and placed the company under review for a downgrade.

Moody’s stated that South Africa’s 21-day lockdown to contain the outbreak creates further uncertainty on near-term financial performance, while an extended lockdown beyond the original timeline could further affect performance.

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 of approximately US$10 million per annum.

As stated in the market update on 17 March 2020, Sasol has developed a comprehensive response strategy, which is being executed to mitigate the impact of Covid-19 and a lower oil price as far as practically possible.

This includes a cash conservation programme, an accelerated and expanded asset disposal and partnering programme, as well as a potential rights issue of up to US$2 billion, which remains subject to the progress of other initiatives.

Sasol maintains a long-term commitment to achieving an investment grade credit rating.

Further to this, progress has been made on Sasol’s hedging programme reducing Sasol’s exposure to any further short term pricing downside.

Oil hedges are in place for approximately 80 per cent of Synfuels fuels Q4 FY20 production, at approximately US$32 per barrel.

Crude oil hedging execution will continue for the next 12 months, while US$/ZAR and ethane hedging programmes have been executed for the next twelve month period.

Sasol continues to have liquidity of approximately US$2, 5 billion to provide an additional buffer against short term volatility.

Mr Fleetwood Grobler, Sasol Executive Vice President, said: “This is an unprecedented time in the history of Sasol and the world.

“We will continue to take decisive action to help safeguard the health and well-being of our employees and provide essential products to the many stakeholders that rely on us, while we reposition the business to enhance its long term future.”

Mr Anderson advised shareholders to continue to exercise caution when dealing in the company’s securities until a further announcement is made.