By: Ujuh Correspondent
The more than 200 000 black investors who were sold a lemon under the guise of Broad Based Black Economic Empowerment by petrochemicals giant Sasol have now been thrown back to the wolves. They are now firmly at the mercy of the banks who made this mess in the first place.
The worst case scenario is playing out partly because of the clumsiness of Sasol directors in handling the matter of 200 000 mostly vulnerable citizens. You have to wonder if Sasol directors and their advisors would be as clumsy in handling affairs of mainstream investors.
It has been clear for a while that the R30 billion Sasol Inzalo BBBEE deal was going bad. The deal has suffocated under a pile of expensive debt and an underperforming Sasol share price.
Established in 2008, the 10 years long deal was set to leave investors owing money to the funders if left to its own devices. The black investors who were lured into the Sasol Inzalo deal have lost money while everyone else has made money from it. The banks have drawn more than R5 billion in interest payments from the deal and are set to rake in more money. Sasol derived enormous BBBEE points from this deal which secured its mining rights, other licences to operate as well as its South African revenue base.
Recognising the disaster in the making, Sasol executives came with a plan that would have somewhat saved the situation. The plan announced last month promised to plug a financial hole estimated at $900m in the Sasol Inzalo scheme.
This was going to be realised by issuing more Sasol shares and applying the proceeds of that issue to plug the BBBEE financial hole. This would dilute the value of existing Sasol shares. And so Sasol shareholders rejected the plan.
And now Sasol said it will in consultation with the banks “explore different funding options to settle the relevant financing obligations.”
There aren’t many options, explains veteran BEE analyst Ajay Lalu. “Sasol is unlikely to get any concessions from the banks,” he said.
“The other option is to ask Sasol Inzalo shareholders to pay in additional monies to plug the whole. We all know that this is never going to happen. These poor shareholders have already been dealt a severe blow. It will be a political and reputational disaster if you take that option,” said Lalu.
But someone has to pay to plug this gap, he says.
“The most likely option in my view is to renegotiate the refinancing of the deal. In simple terms the banks would have to rollover the loans offered to the scheme when the financing term contract terminates next year, or to change the terms of a fixed interest rate to a variable rate or even reduce the rate,” said Lalu. He does not believe that the banks would agree to this as it will set a precedent for others to renegotiate terms of agreements on loans with hindsight.
But then a refinancing of the deal is not good news at all for Sasol Inzalo investors. It basically means they will continue to front for banks for the next 10 years like they did for the past 10 years. This deal will amount to 20 years of BBBEE fronting.
Lalu concurs with this view. He says given the fact that black investors made no money (“not a single cent”) from this deal while banks and other parties benefited handsomely from it means that the 200 000 Sasol Inzalo shareholders were used as a “front”.
Sasol executive leadership should concur that the refinancing option is toxic. You get this when you listen to them speak about how they plan to make the proposed new Sasol Khanyisa deal a sustainable affair. They declare that the new deal will rely on vendor financing and will not employ the inefficient third party funding.
But then Sasol executives are partly to blame for the playout of the worst case scenario. They have been clumsy.
Here is the thing:
Sasol executives, presumably in consultation with their corporate finance advisors -who do not come cheap- hatched the plan announced last month and rejected by shareholders this week. And they would have taken the plan to the board. Presumably the board workshopped the plan and ratified it.
The plan was thereafter announced to the public on the 20th of September 2017. It sounded like a plan. A circular distribution and notice of general meeting to Sasol shareholders was set for the 18th of October 2017. The General Meeting was to be held at the Hilton Sandton Hotel on Friday the 17th of November 2017.
Alas! Sasol directors had not done their homework properly. Shareholders rejected the plan.
It’s really silly for a firm as big as Sasol to prepare such a big announcement without stress testing it.
Tricky yes, but shouldn’t they have solicited views of major shareholders before coming to the public with their half-baked plan. You have to wonder how much did they pay for the advice which informed this failed plan.