Why markets are concerned over Sasol

Sasol, a once solid performer in the market, is now facing a storm of uncertainty and challenges that have led to its plunging stock price. The company, known for its steady performance and reliable dividends in the past, is now grappling with a mix of global and local market factors that have investors concerned. Joining CNBC Africa to discuss the situation is Edgar Mafoko, an Investment Portfolio Manager at FNB. One of the key factors contributing to Sasol's current woes is the low price of oil, which stands at $35 per barrel on the Brent crude index. While the weaker rand provides some relief for the company, it is not enough to offset the impact of other issues. Market analysts are particularly worried about Sasol breaching its debt covenants, with its debt level far exceeding its market capitalization. The looming maturity of a billion-rand loan in the US by the end of May adds to the uncertainty surrounding the company. The challenges for Sasol are not limited to external market conditions. The company's ambitious Lake Charles project in the US, which has cost a staggering $12.9 billion at completion, has been a significant drain on its resources. The project, which was expected to be a major revenue generator for Sasol, has been marred by trade wars, shrinking margins in the chemical sector, and the ongoing price war between Saudi Arabia and Russia. As a result, even the core business of Sasol is struggling to turn a profit in the current economic environment. Despite the bleak outlook, there is a glimmer of hope for Sasol in its Lake Charles project. If the project can start generating profits, especially with the favorable exchange rate due to the weak rand, it could contribute positively to the company's cash flow. However, any earnings generated are likely to be channeled towards reducing the company's debt burden rather than paying dividends to shareholders, as protecting the balance sheet is currently a top priority. The road ahead for Sasol remains challenging, with uncertainties looming over its financial health and the viability of its projects. Investors are eagerly awaiting any updates from the company regarding its debt situation and the progress of the Lake Charles project. The future of Sasol hangs in the balance as it navigates through this rough patch in the market.