Sasol Crash: Government, PIC lose about R200bn in one week

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CAPE TOWN – Multinational chemicals and energy giant Sasol this past week suffered the worst rout in value than any other JSE-listed company after Steinhoff – now down almost 95 percent since last year and valued at about R23 billion from R450 billion. Sasol’s share price has steadily declined due to cost overruns and operational problems at its R200 billion Lake Charles chemicals project in the United States. According to reports, the project has left it with a debt burden of more than R120 billion. The company’s near demise has cost the government more than R200 billion through a 13.5 percent interest by the Government Employees Pension Fund (GEPF) and an 8.5 percent stake by the Industrial Development Corporation (IDC). But then the unreal way that South Africa seems to operate is that this huge loss of value is pretty much all in a day’s work as it shifts its focus to fledgeling companies mentioned in the report on the Commission of Inquiry into alleged impropriety at the Public Investment Corporation (PIC). This is not at all to suggest that the Sasol rout has not been covered because indeed it has been covered, albeit based on the global pandemic COVID-19 and the Saudi-Russia oil-price war sinking the oil price, but it seems no one cares to look at what truly lies beneath.

The PIC, which manages the GEPF’s funds, has not once issued a statement on how it expects to recoup the lost value in Sasol. Instead, there seems to be some subliminal ululating over the potential destruction of 10 odd black-owned companies mentioned in the PIC Report.

Interestingly those black-owned companies and business leaders, with the exception of the Lancaster/Steinhoff and Erin Energy, carry a substantial amount of value remain and they remain to add value to Africa’s largest asset manager’s investment.

The PIC in recent times has lost at least R200 billion if you consider its losses in Lancaster/Steinhoff and Erin Energy, combined with EOH, Tongaat Hullet and several other listed entities.

What is strategically camouflaged is that Steinhoff, EOH and Tongaat Hullet have all admitted that there was massive fraud within their companies and the PIC’s losses are directly attributable to the fraud?

The untransformed leadership in these organisations seems to be no longer comfortable with black leadership in this country, has no interest in South Africa and are very likely looking to move their wealth abroad.

No matter how anyone wants to interpret the PIC Commission’s report, with exception to VBS Mutual Bank, there have been no findings of fraud in the black-owned PIC investee companies. Improper governance? Yes. And most importantly the findings were on the asset manager’s own processes.

What is recommended for further investigation by the Mpati Commission should not be confused as findings?

The report at no point shows that former chief executive Dr Dan Matjila and several other business leaders personally benefitted, yet anti-transformation pedalists let rip at black-owned companies and largely ignore the real fraud.

Matjila’s role in growing the PIC from about R600 billion to more than R2 trillion is all brushed away, in the quest to keep a good man down. Hhayi bo! As Luther Lebelo pointed out: “It is not possible for (former PIC chief executive) Dr Dan Matjila to have the whole board ‘rubber-stamp’ his decisions as the report claims,”

Sasol has cost the government pensioners more than R120 billion in 1 week yet no government official or PIC official has raised questions about its governance. It could potentially face bankruptcy similar to the 99 percent destruction of Steinhoff. Sasol may have to pull a fire-sale in order to service its debt at a time when South Africa cannot afford to bail it out.

According to JPMorgan’s Alex Comer, there is a high probability that Sasol will breach the covenants agreed with its lenders, but the most sensible option for banks would be to give it six months to improve its situation, rather than call in their loans, Comer said. “It’s possible but unlikely that Sasol will go bankrupt. The market appears to be pricing in an equity issue or a total collapse of the company.”

JPMorgan downgraded Johannesburg-based Sasol to neutral from overweight last week, slashing its price target for the stock to R93 from R280. The yield on Sasol’s $750 million of notes due December 2028 jumped 137 basis points to a record 8.43 percent.

Sasol says at the prevailing rand oil price it would be within current covenant levels at June 30. The company says it is looking to boost income from disposals beyond its $2 billion target and in “constructive” talks with its lenders.

One would be forgiven to think Sasol is from another planet because of the focus on black companies that have not even committed fraud. Look at MTN (accused of corruption in Uganda) Aspen (fined in Europe) all of which are PIC investee companies the total loss to SA is in the region of R400 billion.

While commentators focus on the likes of SAA Eskom, other SOEs, the reality is that in the private sector the destruction is even greater. And of course, it will be blamed on the coronavirus.

Sasol Executive Vice President: Chemicals Business, Fleetwood Grobler, says: “The disruption in the global oil market, coupled with the ongoing impact of COVID-19 has significantly changed the outlook in just a few weeks.”

Just putting it out there.

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