SASOL: 36,700 +905 (+2.53%)
Sasol raises cost estimate for U.S. plant by around $1 bln
* Cost of Lake Charles plant up around $1 bln
* Expects lower return on project
* Shares fall more than 10%
(Adds CEO comment, share price, asset sale)
By Tanisha Heiberg and Emma Rumney
JOHANNESBURG, May 22 (Reuters) - Sasol has raised
the expected cost of its U.S. ethane cracker project by around
$1 billion following a review by the project's new management,
the South African petrochemicals firm said on Wednesday,
sending its shares more than 10% lower.
The estimate for the Lake Charles Chemicals Project (LCCP),
which will convert natural gas into plastics ingredient
ethylene, is now $12.6-12.9 billion, including a contingency of
$300 million, Sasol said in a stock exchange announcement.
The company said the review of the project, which was
initially expected to cost $8.9 billion in 2014, revealed
oversights such as duplicate credits and overlooked contracts,
adjustments for potential insurance claims, procurement
back-charges and remaining work and repairs that needed to be
"We are extremely disappointed with the increase in LCCP's
capital costs. We take accountability and we are confident that
the revised plan will be delivered," said joint president and
chief executive officer Bongani Nqwababa on a conference call.
Sasol had said in February the plant in Louisiana, which saw
the first of seven units start production earlier this year, was
expected to cost up to $11.8 billion.
Shares in Sasol, the world's biggest maker of motor fuel
from coal, were down 12.5 percent to 377.45 rand at 0753 GMT.
"The numbers just don't look very flattering at all," said
Ryan Woods, market trader at Independent Securities.
Sasol also cut the forecast return from the project to
6-6.5% from 7.5% due to the increased cost as well as the
outlook for market prices.
It reduced the project's expected earnings before interest,
tax, depreciation and amortisation (EBITDA) for the 2022
financial year to $1 billion from $1.3 billion.
Sasol said the project was 96% complete, with capital
expenditure at $11.4 billion as of the end of March.
The cost increase will result in higher gearing - net debt
to EBITDA - for Sasol for 18 to 24 months, with gearing expected
to peak at 2-2.3 times during fiscal 2019, the company said.
"We believe that the balance sheet is sufficiently robust to
absorb the increase in cost and our capital allocation strategy
is unchanged. We remain confident for the long-term outlook for
the LCCP," said Nqwababa.
Sasol, which has plans to offload around $2 billion in
assets across its portfolio, said the sales would further
(Reporting by Tanisha Heiberg and Emma Runmey, Editing by
Subhranshu Sahu and Mark Potter)
First Published: 2019-05-22 08:21:44
Updated 2019-05-22 10:37:17
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