Sasol will begin dismissing employees from mid-August as part of a cost cutting strategy aimed at boosting its balance sheet which has been hammered by a decline in oil prices as a result of the Covid-19 pandemic.
In a letter to employees dated 18 June, seen by Fin24, the company said it was under significant financial pressure and won’t survive the crisis unless stringent actions are taken.
The petrochemical firm, which has 31 000 employees around the world, anticipates its financial position to remain under “severe pressure” due to depressed oil prices.
The Johannesburg-based company said its “…financial position continues to be under severe pressure, especially with anticipated lower for longer international crude oil prices”.
In April, when it became evident the pandemic was a global emergency, the price of benchmark US oil briefly plummeted to a position where an empty barrel of oil was briefly more valuable than the product, after holders of US oil futures were left with nowhere to store their oil and no buyers.
Brent crude also fell, although it has since recovered somewhat. At just over $41 a barrel Brent crude is still some 45% off its 2014 high.
It is not yet known how many people stand to lose their jobs.
Sasol said processed would be determined through a diagnostic phase. Proposed criteria include the last in, first out system, as well as the skills and competence of employees.
With a debt burden of R121 billion, Sasol this year came up with a cash conservation strategy which included a disposal of assets and a potential rights issue of up to $2 billion, as well as a reduction on external spending and executive salary cuts for a limited period.
But these measures have not been sufficient, it said, adding that it needed to adapt to the changing environment in order to ensure competitiveness.
According to Aluwani Capital Partners Head of Equities, Patrick Mathidi, reining in debt is a key part of Sasol’s challenge. Debt currently exceeds the market value of the business. As a result measures such as cutting jobs had to happen.
Mathidi said that attached to the debt problem are debt covenants which may trigger concerns with lenders.
“In the case of Sasol, they can’t control the price of oil and the rand volatility …and a chunk of their income goes toward debt servicing and salaries. As a result, jobs will unfortunately be on the line.”
“What we are seeing has a lot to do with the need to arrest the debt problem and the delays in the Lake Charles Project which took a while to start production, [and this] coincided with the oil price collapse – so they got caught in a nasty storm.”
Sasol expects full year earnings for 2020 to dip by as much as 20% when it tables its annual financial statements on 17 August. The company’s share price was down 2% at R135.15 on Friday morning.