Sasol Steers Clear of Pricey Debt

Johannesburg, Oct 09, 2008 (Business Day/All Africa Global Media via COMTEX) -- SSL | Quote | Chart | News | PowerRating -- SASOL's strong balance sheet has, so far, cushioned it from the full impact of the subprime credit crisis.

In her review on Sasol's 2008 annual report, chief financial officer Christine Ramon said the group was monitoring the global financial turmoil that has negatively affected the international debt capital markets. She said the subprime credit crisis had resulted in a significant increase in the cost of new debt issuances.

In the past financial year Sasol did not have to access international debt capital markets for funding because of its strong cash position.

In the past three years Sasol has spent R36bn on projects -- with R11bn of this spent in the 2008 financial year.

In addition to expenditure on projects, Sasol is implementing a share buy-back programme that will see the group buying up to 10% of its issued share capital.

Besides the credit market risk, Ramon also counted international crude oil prices and exchange rates among key risks affecting the group's operating performance.

She said Sasol was exposed to the fluctuations of the crude oil price as its National Petroleum Refineries of South Africa (Natref) refinery and its European chemical businesses use crude oil-related raw materials. Also, the selling price of fuel marketed by Sasol Oil depends on the basic fuels price, influenced by, among other factors, the crude oil price and the exchange rate.

Ramon said despite the R2,3bn opportunity loss in the year to June because of its policy to hedge a portion of its synfuels production, the group believed the strategy remained appropriate to cushion Sasol against oil price volatility and currency fluctuations.

In the 2009 financial year, Sasol has appropriately hedged 16,4- million barrels or 30% of Sasol Synfuels planned productions.

The hedge would provide downside protection should monthly average dated crude oil prices decrease to below $90 a barrel on the hedged portion of synfuels production.

But Sasol would incur opportunity losses on the hedged portion of production should monthly average oil prices exceed a volume-weighted average $228 a barrel.

The oil price yesterday afternoon was at just over $82 a barrel.

For budgeting and forecasting purposes an increase of $1 a barrel in the annual average crude oil price would increase Sasol's operating profit by about $51m during the 2009 financial year, said Ramon.

She said Sasol expected 2009 earnings to reflect robust growth.

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