South Africa’s biggest tax payer unburdens $1 billion worth Assets from its portfolio

South Africa-based Petrochemicals Company Sasol plans to divest about $1 billion in assets from its portfolio, with the intention to keep only those that yields significant investment returns.

Confirming this at the company’s results presentation on Monday,  joint president and chief executive officer Bongani Nqwababa according to a Reuters report said that “We will retain or fix those assets that will increase our returns while exiting those that are not in line with our strategy and have lower than desired returns.”

“It’s likely that we would end up probably having some sort of assets in most of the regions,” said joint president and chief executive Stephen Cornell.

Taking a U-turn from its course to invest in gas-to-liquid greenfield projects in 2017, including one in Louisiana that is estimated to cost $13 billion to $15 billion, the world’s first oil-from-coal company had also rid its Canadian shale gas assets on which it took a 9.9 billion rand ($715 million) impairment on its 2016 earnings.

Though, the GTL assets were generating good returns and cash flows, Sasol had to pull-the-plug on the project that would have been the biggest investment abroad by a South African company. Accordingly, “the value proposition for Sasol to build new GTL projects” was “uneconomic against a volatile external environment and a structural shift to a low oil price environment”.

The company’s recent decision to offload assets that have not yielded satisfactory returns would be implemented, following evaluation to be carried out on assets in South Africa, Europe and North America. The evaluation would be carried out with consideration to “trading environment, potential return generation and whether they fit Sasol’s strategy” Sasol said.

Progress so far

With the increase in crude oil prices, the South Africa largest corporate taxpayer reported a 17 percent rise in first half profit, leading to shares of 3.30 percent to 407.51 rand by 1308 GMT.

Speaking on the progress of the company, a Cape Town-based fund manager with Investec which has shares in Sasol, Hanré Rossouw  while speaking with Reuters said “The business is now in better shape than it was two or three years ago and we are seeing that in the numbers.”