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Sasol's share price lost 40% of its value in opening trade on Thursday morning.
The share price briefly dipped below R30 - from R470 less than a year ago. Its share price has now lost almost 95% of its value since April last year.
In a week of stocks crashing across the world, Sasol has been the worst-performing share in all of the emerging markets.
Sasol has been under pressure for many months, due mainly to its disastrous R200 billion Lake Charles chemicals project in the US, which has been hit by large budget overruns and operational problems. The company fired its joint CEOs, Bongani Nqwababa and Stephen Cornell, after a forensic investigation found mismanagement regarding the project.
However, the recent oil crash proved the final straw for investors.
By Thursday morning, Brent crude oil was trading around $34 a barrel from above $50 at the end of February.
Sasol - until recently one of South Africa's ten biggest companies, and traditionally one of the biggest local corporate taxpayers - is now valued by the market at less than R20 billion.
It has a debt burden of more than R120 billion. Investors are concerned that Sasol may contravene its loan agreements with banks following the oil crash.
Some of Sasol's loan conditions (so-called debt covenants) require that its debt-to-profit levels remain above a certain level. Sasol's profits will take a hit from the lower oil price, which will probably leave it in breach of these debt covenants. This means that its loans could become payable immediately.
It is likely that, before breaching, Sasol will approach its lenders and discuss its options and what could be done to remedy the situation, Seleho Tsatsi, investment analyst from the asset management group Anchor Capital, told Fin24. To remedy the situation, Sasol could issue shares and/or a convertible bond, and sell more of its assets.
The company already undertook to earn $2 billion from asset disposals, Tsatsi said. At its interim results, it indicated that it was about 25% of the way towards that goal. Some assets, like the company’s Canadian Montney shale gas assets, have been earmarked as being for sale.
But the oil crash may seriously hurt the prices Sasol will get for these assets.
"Current oil prices obviously put meaningful pressure on Sasol’s income statement and balance sheet," says Tsatsi. "The focus will be on getting through the next year or so, after which capex should start to decline quite significantly."
* Compiled by Helena Wasserman
