Sasol Cut to Junk by Moody’s on Debt, U.S. Project Overruns

JOHANNESBURG (Capital Market in Africa) – Moody’s Investors Service downgraded South Africa’s Sasol Ltd.to junk, citing high debt and cost overruns at its Lake Charles chemical project in Louisiana.

The ratings company cut its assessment on Sasol’s long-term rating to Ba1, from Baa3, with a stable outlook, it said in a statement on Thursday.

“The decision to downgrade the ratings to Ba1 reflects Moody’s view that Sasol’s financial leverage will remain elevated over the next two years, and that the pace of deleveraging is vulnerable to event risks and challenging market conditions globally and domestically,” Moody’s said. Free cash flows will not be enough to materially reduce the company’s 138 billion rand ($8.9 billion) of debt, it said.

South Africa’s biggest fuel and chemicals producer said in January the Lake Charles Chemicals Project will make a smaller contribution to earnings, cutting its guidance for the second time in five months. The project, an effort to boost the portion of chemicals in Sasol’s sales mix, has experienced a string of setbacks that have punished Sasol’s share price and its ambition to increase income from abroad.

“We remain focused on managing the factors within our control – delivering safe, strong and stable operational performance,” Sasol Chief Executive Officer Fleetwood Grobler said Friday in a statement. “The revised rating profile is not expected to have a material impact on our existing funding costs.”

Sasol fell as much as 5.6% to the lowest since May 2005 in early Johannesburg trading Friday. The shares were 4% lower as 9:04 a.m.

The company said it’s already taken actions including a measured financial risk management program to hedge oil and ethane commodity prices and exchange rate exposures, managing costs, increasing working capital efficiency and agreeing to additional flexibility on covenants with lenders.

The Johannesburg-based company reported a 73% drop in first-half earnings per share last month after oil prices fell in rand terms, global chemical markets softened and because of the Lake Charles setbacks.

Source: Bloomberg Business News