Sasol South Africa’s Mozambique pipeline sale is a win-win

First, the proposed transaction will help generate cash and to shore up Sasol’s balance sheet. Second, the selling down forms part of a broader strategy to exit non-core assets through targeted divestments. Most important, is that Sasol will still have access to cheap gas from Mozambique to use at its South Africa operations, in particular at Secunda.

In March 2020, following the onset of the Covid-19 crisis which precipitated a plunge in global oil and chemical prices to record lows, Sasol instituted a range of measures to ease pressure on the company’s highly geared balance sheet. Added to this was the volatile rand-dollar exchange rate.

Sasol came up with a comprehensive response plan which would result in the company’s repositioning by June 2022. A prominent feature of this plan was Sasol expanding the scope of and accelerating its asset divestment programme “to realise proceeds significantly in excess of … $2bn … by no later than end of the financial year 2021.”

In line with that accelerated divestment programme, Sasol announced on 14 May the conclusion of a sale and purchase agreement which will result in Sasol South Africa selling down a 30% interest in Rompco to an acquisition vehicle owned by a consortium consisting of the Reatile Group and the IDEAS Fund.

The proposed transaction is subject to the pre-emptive rights on the sale shares held by the other shareholders of Rompco, being the South African Gas Development Company [iGas] and Companhia Moçambicana de Gasoduto.

The Reatile Group is a black-owned investment holding company with interests in the energy, petrochemical and industrial sectors. Its energy interests include renewables, shale gas and natural gas. The IDEAS Fund, one of the largest domestic infrastructure equity funds in South Africa, is managed by African Infrastructure Investment Managers, a subsidiary of Old Mutual Alternative Investments.

“The proposed transaction is subject to the pre-emptive rights on the sale shares held by the other shareholders of Rompco, being the South African Gas Development Company [iGas] and Companhia Moçambicana de Gasoduto,” according to Sasol.

iGas is one of five subsidiaries that fall under the Central Energy Fund, which is owned by the South African government and is accountable to the department of mineral resources and energy. iGas was founded in 2000 “for the development of hydrocarbon gas and gas infrastructure in Southern Africa.”

Ins and outs of transaction

In terms of the proposed transaction:

• The Sasol South Africa sale shares will, subject to certain adjustments, be sold for a consideration comprising an initial amount of R4,1bn and a deferred payment of up to R1bn payable if certain agreed milestones are achieved by 30 June 2024.
• It (the proposed transaction) is expected to take effect during the second half of calendar year 2021, says Sasol.

Sasol South Africa will retain a 20% shareholding in Rompco. It will also continue to operate and maintain the pipeline according to the commercial agreement between Sasol and Rompco, “which is independent of the proposed transaction.”

Crucially, Sasol’s agreements with Rompco to transport gas to Secunda are unaffected by the proposed transaction “and the tariffs remain as per the said agreements, which were approved by the National Energy Regulator of South Africa.”

Placing the proposed transaction into context, one analyst, who asked not to be named, says:

“Effectively, you have to go back 12 months. Sasol were in quite a bit of balance sheet or financial distress with what happened with oil and chemical prices. So this made them look at a whole bunch of divestments.”

“The key thing here is that they don’t actually need to own 50% of this pipeline to enjoy cheap gas from Mozambique. The real asset is the gas fields in Mozambique, which gives them cheap gas to use here in South Africa,” says the analyst.

Although Sasol South Africa has a 50% stake in the pipeline, ultimately the company does not need to own the pipeline to be able to transport gas from it, adds the analyst. “That’s the strategic rationale for why they’ve sold it down. And, obviously, the reason why they’ve been raising cash is because of the financial position they found themselves in last year.”

Strategy, strategy, strategy

“In terms of the disposal, they have highlighted that this is one of the assets that are up for sale – and has been up for sale – since they started with this asset divestment strategy to shore up their balance sheet,” another analyst, who asked not to be named because of company policy, tells The Africa Report.

However, “in terms of size, it is dwarfed by the sale of the 50% stake in the LCCP [Lake Charles Chemicals Project], which they did last year. It’s not as sizeable a divestment. It is really not a core part of the investment stance or the story of the company,” says the analyst.

“It’s more of an infrastructure asset [the pipeline], which they’ve had this 50% stake in. It’s a way for them to get a bit of extra cash in and shore up their balance, as they outline their strategy,” according to the analyst.

Sasol has reiterated its commitment to the company’s operations in Mozambique, “which continue to be integral to Sasol’s gas strategy.”