Sasol Inzalo, the company’s BEE scheme created in 2008 and the biggest such deal at the time, will be dismantled when it matures in 2018. The scheme failed to live up to expectations and will be replaced by a new R21bn BEE scheme called the Khanyisa empowerment scheme. Sasol’s shareholders reacted negatively to the announcement.
Sasol is on the hook for further debt payments and other commitments occurred in the Inzalo BBE scheme and may need to raise as much as R13 billion to cover the shortfall. The company is considering issuing 43 million shares in an accelerated bookbuild to fund the repurchasing of the shares from the different Inzalo shareholder groups.
Sasol shares fell as much as 7% in trade today after the announcement as another BEE deal dilutes shareholders and reduces the value of their shares. Sasol’s share price is trading over 8 % higher since end of June due to an increase in Brent Crude Oil prices to North of $50 a barrel.
The downfall of the Sasol Inzalo scheme can partly be attributed to the period when the scheme was initiated in 2008. At the time, Brent Crude was trading close to $100 a barrel and there was no indication of a bear market hitting the commodity in the coming years. Sasol’s investment into natural gas has not reaped the rewards expected and adds to a list of factors that puts the company and its BEE scheme under pressure. There are other factors that contributed to the downfall of the Inzalo scheme. Interest on debt was fixed while interest rates declined, causing Sasol to pay more towards interest and the company’s share price has performed poorly. Sasol is now forced to dilute its shareholders with a replacement deal and should be negative for the share price while the company scrambles for funding to implement the changes.
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Analyst and Securities Trader
Daniel is a full-time analyst and securities trader, and is responsible for equities research across industries. Although he grew up in a small town in the Klein Karoo, Daniel has always been interested in both locally and internationally traded companies. Daniel has been actively investing and trading on the JSE and other global exchanges since starting his Bcom Investments Degree at the University of Stellenbosch, which he completed in 2014 . During his studies, Daniel worked as an intern at Kruger International in Johannesburg in 2015, gaining valuable experience from Hein and Mia Kruger. He is currently a CFA candidate.