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Sasol ditches funding plan to settle old BEE scheme debt

Oct 09 2017 07:56

Cape Town – Sasol has ditched its preferred method to settle outstanding debt regarding the black economic empowerment scheme it is disbanding, it announced on Monday.

In September, Sasol said it will disband Sasol Inzalo when it matures next year and launch the R21bn Khanyisa empowerment scheme.

Sasol Khanyisa drew criticism for its complex and confusing structure, as well as the fact that shareholders would face further loss of value, City Press reported recently. To provide Khanyisa participants with value, Sasol was going to hand out R1.9bn in free shares to its employees and R1bn in free shares to ordinary black investors. Khanyisa will cost Sasol shareholders R7.3bn via a share-based payment expense.

Sasol has said its preferred funding option was to undertake an accelerated book-build of up to 43 million Sasol ordinary shares to enable the funding of the minimum amount sufficient to repurchase the relevant Sasol preferred ordinary shares and settle the relevant obligations and associated costs of the Inzalo FundCos.

“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.”

Sasol 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."

With over 206 000 shareholders in Inzalo, the scheme was one of the biggest BBB-EE transactions in South Africa. Inzalo holds 16.1 million ordinary shares of Sasol and derives income from its dividends. It boasted over 200 000 previously-disadvantaged shareholders. But Sasol felt the scheme has not delivered on the desired outcome.

Inzalo comprised four elements: the Sasol Inzalo employee trusts, the Sasol Black Economic Empowerment ordinary or SOLBE1 shareholders, the Sasol Inzalo Groups funded element and the Sasol Inzalo Foundation. The foundation will be renamed and will not be part of Khanyisa.

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