Sasol has announced that its US financing subsidiary has begun the process of issuing dollar-denominated bonds worth $740 million (nearly R14 billion). The proceeds will largely be used to repay existing credit facilities maturing in a few weeks.
The convertible bond offering follows the issuance of rand-denominated bonds worth R15 billion a few weeks ago, which was also undertaken to repay debt owed.
Sasol Financing USA LLC will issue the new senior unsecured convertible bonds, guaranteed by Sasol Limited. The new five-year bonds will mature in November 2027.
Debt
According to its latest annual report, Sasol had approximately R16.4 billion in debt at the end of its financial year at the end of June 2022. The rand amount of this dollar debt maturing at the end of November is likely much more. high now due to the decline in the rand from 16.50 rand per dollar at the end of June to 18.20 rand currently.
The fact that Sasol is raising less than the amount it clearly needs to replace maturing debt shows that things are going well within the international energy and chemicals group.
Management notes in the announcement of the new bond offering that the net proceeds will be used for more than just rescheduling existing debt. “The offering [is] should be used for general corporate purposes, including but not limited to debt refinancing,” it says.
The new convertible bonds will be offered to qualified investors and will be issued on or around November 8, 2022.
Interest rate
Sasol estimated in its initial announcement on Tuesday that the bonds should pay a coupon of between 4% and 4.5% per annum. He announced later that day that the price had finally been set at 4.5%.
The R16.4 billion repayable now also had a fixed interest rate of 4.5%.
While the interest rate is roughly the same, it still shows improvement when considering that interest rates have risen sharply. For example, the guaranteed overnight funding rate (SOFR) for dollar-denominated debt has fallen from nearly zero percent at the start of 2022 to 3.05% currently.
The extent to which Sasol’s financial situation has improved in the eyes of investors can be seen in the fact that it is still paying SOFR plus 2% on some R23 billion of debt which is due in June 2024.
It is also paying fixed rates of between 4.4% and 6.5% on dollar debt worth R62 billion that is due between 2024 and 2031.
The latest financial statements show Sasol had R104 billion in long-term debt at the end of June 2022, of which R22 billion was repayable within 12 months of the balance sheet date.
Debt remained largely unchanged from a year ago, but cash balances improved as profit fell from R10.5 billion in FY2021 to R41.7 billion. rands last year. Cash flow from operating activities improved from R34.5 billion to nearly R41.2 billion.
Lily:
Sasol had a cash position of almost R43 billion at the end of June 2022, compared to R30 billion at the end of the 2021 financial year.
Conversion rate
The group based the conversion rate for the convertible bonds on its share price on Tuesday, November 1, using a weighted average price of the trading day, plus a significant premium of 30% over the calculated price.
He released a separate announcement from Sens after the JSE closed on Tuesday to say he will convert the bonds into Sasol shares at a price of around $20.38 per share when they mature in five years. This compares to the day’s closing price of $15.62 per share (R285 at an exchange rate of R18.24 per dollar).
This represents a sort of out-of-the-money position for investors, but it is likely that Sasol’s stock price will be above the “strike price” given Sasol’s outlook.
Only time will tell if bondholders will benefit in addition to the 4.5% annual interest payments.
Lily:
“The Convertible Bonds will be issued at 100% of their principal amount in minimum denominations of $200,000 each and, unless first redeemed, converted or purchased and cancelled, each will be redeemed at their principal amount on or around November 8, 2027,” according to the announcement.
“The convertible bonds will pay a coupon of 4.5% per annum, payable semi-annually in arrears and in equal installments on May 8 and November 8 each year, with the first interest payment date May 8, 2023.
“The initial conversion price is $20.3863, which represents a 30% premium to the volume-weighted average price of common stock listed on the JSE’s main board from the opening of trading to the close of trading. Pricing today, November 1, 2022, translated to US dollars using the exchange rate at the time of pricing.
It adds that the conversion price will be subject to market standard anti-dilution adjustments in accordance with the terms, including events such as dividends.
However, Sasol also has the option to redeem the convertible bonds at their principal amount (plus accrued but unpaid interest) in accordance with the terms at any time from November 29, 2025, if the parity value is equal to or greater than $260,000. for a fixed term. period of time, or if at any time 85% or more of the principal amount of the convertible bonds originally issued have been converted and/or redeemed and/or purchased and cancelled.
Sasol will apply for a listing of the bonds on the Open Market (Freiverkehr) segment of the Frankfurt Stock Exchange within 30 days of the closing date of the offer.
Listen to this MoneywebNOW podcast with Simon Brown to find out if a recent update from Sasol means there’s an opportunity for investors:
