Why Sasol dropped USD950 million share sale plan

Sasol

One of the world’s largest maker of fuel from coal, Sasol, has dropped preferred method to settle outstanding debt regarding the black economic empowerment scheme.

The company said in the statement also confirmed that it would disband the initially announced Inzalo when it matures next year and launch the R21bn Khanyisa empowerment scheme which will cost the company shareholders R7.3bn via a share-based payment expense.

“The rationale for this option was to achieve rapid resolution of Sasol and the Inzalo FundCos respective financing obligations with a structure designed to help protect Sasol’s investment grade credit rating with limited incremental dilution for shareholders of approximately 1% incremental dilution pursuant to the issue by Sasol of new ordinary shares,” the petrochemical firm said in a statement on Monday.

“Following extensive engagement with shareholders, Sasol is now undertaking to explore, in consultation with the external banks and Inzalo FundCos, different funding options to settle the relevant financing obligations.

“Sasol will therefore no longer pursue the preferred funding option, as described in the first announcement, of issuing up to 43 million ordinary shares through an accelerated book-build process.

“Sasol’s intention is to mitigate the amount of shareholder dilution whilst still maintaining Sasol’s investment grade credit rating.

“The terms of Sasol Khanyisa relating to Sasol Inzalo participants, SOLBE1 shareholders and qualifying employees as set out the first announcement are in no way affected by this announcement.”

The company said that 25 547 081 Sasol preferred ordinary shares are due to be re-designated to Sasol ordinary shares during June and September 2018.

“This would result in dilution for existing ordinary shareholders of approximately 4%,” it said. “These shares would then need to be sold in the market by the Inzalo FundCos in order to fund the redemption of the preference shares and cumulative dividends.

“Based on the recent trading range of Sasol’s share price, however, this would not be sufficient to satisfy these obligations and creates a funding shortfall of between R2bn and R3bn. This shortfall will be made good by Sasol in terms of a guarantee granted in respect of a portion of the preference share funding at the outset of the transaction.”

The country has set targets for black ownership as it seeks to redress the economic inequalities stemming from white-minority rule under apartheid that ended in 1994.

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