CWC

Sasol’s Delay in Report Is a Pointer to Governance Risk

Africa’s largest publicly listed hydrocarbon company is pointing fingers at itself, indicating higher governance risk, in the opinion of S&P, the global ratings firm.

“A further delay in the release of South Africa-based integrated chemicals and energy group Sasol Ltd.’s year-end results indicates higher management and governance risk, and suggests potential disclosure restatements in last year’s financial statements”, S&P says in a statement.. “We rate Sasol (BBB-/Stable/A-3) two notches above South Africa (BB/Stable/B)”, S&P declares.

The release of results for fiscal 2019 (ended June 30, 2019) was initially delayed from Aug. 19, 2019 to Sept. 19, 2019. However, this has been extended to no later than Oct. 31, 2019, which is within the respective equity and bond listing authorities’ regulatory deadlines.

“The further delay follows the Board’s decision to commission additional work and to give time for further investigation into particular points raised in the original board-commissioned independent review of recent cost and schedule changes in the Lake Charles Chemicals Project (LCCP)”, S&P says in a note to investors.

The investigation began after Sasol announced further increases to the capital cost estimate in May 2019. A preliminary report was provided to the Board on Aug. 14, 2019. The additional investigation includes assessing if any potential control weakness identified in the preliminary report, as well as the root cause for the changes in the cost and schedule estimate, were present in the previous fiscal year.

The review and subsequent additional work followed Sasol’s announcements in February and May 2019 of cost overruns, with LCCP’s capital expenditure exceeding the $11.1 billion it had communicated in September 2018 by $1.5Billion-$1.8Billion. In its Aug. 16, 2019 and Sept. 6, 2019 announcements, Sasol’s Board indicated that it expects no change to the earnings guidance in the company’s trading statement of July 25, 2019, and has also confirmed its previous LCCP capital cost guidance of $12.6Billion-$12.9Billion. The LCCP ethane cracker unit achieved beneficial operation at the end of August 2019.

S&P says it expects “that the financial results for fiscal 2019 will include information on the qualitative aspects of LCCP cost estimation/projection controls, specifically reporting and oversight, further informing our view on Sasol’s management and governance risk”.

 



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