Moody’s Investors Service has downgraded Sasol to junk status.
The Sasol petrochemical group’s long-term debt rating has been downgraded by one level from Baa3 to Ba1 and is now below investment grade.
The short-term rating was also scaled from P-3 (lower-medium investment grade) to non-prime (below investment grade) and the locally-denominated long-term rating from Aa1.za to Aa2.za. The latter is still at a level where Sasol’s ability to meet its financial obligations is considered very strong.
However, the rating outlook has improved from negative to stable.
In a market that is already nervous about the impact of the Covid-19 virus, Sasol’s share price fell more than 5% to R160 in response to the downgrade.
Moody’s says the reason for the downgrade is because they think Sasol’s debt levels will remain high for the next two years. In addition, the rate at which they reduce the debt burden is vulnerable to contingency risks and challenging market conditions, as already demonstrated by Sasol’s downward adjustments in earning projections for his chemical plant in Lake Charles, USA.
Sasol’s debt is currently around R138bn, and Moody’s doesn’t think Sasol’s cash flow over the next few years will be enough to substantially lower its debt levels. Most of the debt stems from spending on building and expanding the chemical plant at Lake Charles, which has been characterized by cost increases and delays.