Sasol Limited (SOL) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to this conference call hosted by Sasol's President and CEO, Fleetwood Grobler. Following the presentation, there will be a Q&A session with Mr. Grobler and members of Sasol management team. [Operator Instructions] Please also note that the presentation of this call is available on the Sasol website. Please note that this conference is being recorded. I'd now like to turn the conference over to Mr. Grobler. Please go ahead, sir.

Thank you, operator. Good afternoon, ladies and gentlemen. Thank you for taking the time to join us today. I will be taking you through some slides, outlining our response to recent events, after which we will open up for Q&A. In the room with me is our CFO, Paul Victor, who will participate in the Q&A session at the end of the call as well as members of our group executive committee. Before we begin, I'd like to provide some thoughts on what has transpired this past couple of weeks. You will recall that this call was scheduled in response to the decision by credit rating agency, Moody's, just over 2 weeks ago to downgrade Sasol's credit rating. None of us could have imagined what would transpire in the interim. The COVID-19 pandemic has caused widespread and far-reaching disruption across much of the world, which is unprecedented in modern times. With the duration and extent of the pandemic uncertain, the economic impact is also unknown. Lead developments in the oil markets last week triggered by leading oil producers have exacerbated circumstances. These significant external shocks have converged to create the perfect storm, leading to possibly the most tumultuous week in the global financial markets in over 30 years. The impact of this fallout from Sasol has been dramatic considering our financial position. We fully acknowledge the uncertainty among all our stakeholders about where this leads us and what the way forward is. As management, we have acted decisively by stress testing a comprehensive response strategy to stabilize the company, protect our balance sheet and preserve the interests of all stakeholders. Before I outline the response strategy, I'd like to draw your attention to our forward-looking statements, which you can read in further detail. The COVID-19 pandemic is causing significant disruption to the global economy and to societies around the world. We have seen a number of countries, including South Africa, impose strong measures to stem further spread of COVID-19. While preventative behavior-based measures are being adopted by people to mitigate this risk, this is significantly impacting consumer behavior. The recent developments in the oil market has shifted the price to a $30 per barrel world from the $60 label that has shaped our outlook up to now. As current circumstances unfold, we expect volatility in the rand-dollar exchange rate and the global commodity markets to continue. The extreme impact on economic activity is going to adversely affect global economic output, and given current uncertainty, a further contraction cannot be ruled out. Taking these factors into consideration, it is essential that we take decisive action to reshape the balance sheet. As I've said previously, it is constrained by the peak gearing cycle associated with the LCCP spend. Fortunately, we have worked hard to make sure that the group has sufficient liquidity for the next 18 months, which is currently at about $2.5 billion. And even at current oil price levels, with some prompt action, Sasol is expected to be within its financial covenants at 30 June, 2020. We have some time, but without action and if these pricing levels persist, balance sheet deleveraging will take too long. It is, therefore, necessary to act and to do so quickly and categorically. Sasol is confident that most of our diversified global portfolio is capable of positive cash flow from operations in a low oil and chemicals price environment. In the short term, however, Sasol needs to enhance cash flow and reposition the balance sheet immediately on the assumption of a lower oil price environment until the end of financial year 2021. We have, therefore, put in place a response strategy that is expected to generate up to USD 6 billion by the end of financial year 2021. This will fundamentally reshape Sasol's debt exposure and enable us to deliver a global competitive business with high cash-yielding assets. To this end, the comprehensive response plan is a package of various measures being undertaken to fundamentally reposition the company by June 2022, as conceptually shown in Slide 4. These measures include: a cash conservation program across the business aimed at improving the cost competitiveness of global assets; to significantly enhance the cash flow generating ability of company; immediate measures target cash savings or cash conservation by June 2020 of USD 1 billion. This will help Sasol to end the year with a net debt-to-EBITDA within its covenant levels as well as helping the group's liquidity position. These measures include working capital optimization and reprioritizing capital expenditure, which aim to deliver $800 million, with $200 million to be saved from immediate business optimization measures, negating the softness of the macro environment. There are further actions to be delivered by 30 June, 2021, which aim to realize $1 billion, including $700 million to be saved from the same balance sheet measures mentioned, and $300 million from continuing business optimization initiatives. I reiterate that safety and asset integrity remain top priorities as these plans are executed. Alongside this, we have now expanded the scope of, and we are accelerating the asset disposal program to realize proceeds significantly in excess of the current $2 billion target by no later than end of the financial year 2021. This disposal program falls on the comprehensive asset review process, which has given a clear financial and strategic framework to assess the appropriate disposal and partnering candidates in this price environment. As part of this process, we are now in discussions for potential partnering at Sasol's U.S. Base Chemicals assets. Lastly, we are proposing a potential rights issue as the final step in the process to reset the capital structure. This is currently intended to be at a level of up to $2 billion, but this will be reassessed depending on the progress with the self-help measures, the asset disposals and the macro environment. Therefore, it's possible that the need will be lower than this at the time when the rights issued is launched after financial year 2020 results. We will coordinate the response measures carefully. The first focus is on self-help measures, prioritizing capital expenditure, reducing working capital and business optimization. We have already started to actuarialize $1 billion by June 2020. We then target another $1 billion to come through by June 2021. And then, at least, $1 billion by June 2022 on a sustainable basis. Our asset disposals could realize proceeds in excess of $2 billion, reducing net debt and increasing liquidity. We are actually well prepared to move forward with a number of different disposals. As mentioned earlier, we have entered early discussions on partnering at our U.S. Base Chemicals assets. However, we obviously recognize it's a challenging environment for M&A, and so we don't want to be too specific on timing. The potential equity raising will be the last of the response measures, and by that stage we will be clear with shareholders what the final capital requirement is in order to set up the capital structure appropriately. We are currently targeting up to $2 billion and have procured the standby underwriting at that level, but we will reduce it if we have made enough progress by that stage. As an additional measure, Sasol is actively engaging its lending groups to discuss appropriate flexibility on covenants. Preliminary engagement has been supported, but these discussions are at an early stage. Sasol will also continue to pursue all active balance sheet management initiatives to make sure that we keep at least $1 billion to $2 billion in liquidity, given the high level of market volatility. Finally, turning to Sasol of the future. As I indicated at the outset, Sasol can maintain sufficient liquidity headroom over the next 12 to 18 months. We have a high quality, well-diversified global portfolio with a range of strategically advantaged assets and value chain integration. The global foundation business remains robust and cash positive at current levels, while being hedged to protect us against further downside. The optimization actions will further improve our position on the cost growth. For all intents and purposes, we have concluded our growth capital expenditure, positioning Sasol as a truly global, diversified petrochemicals company. In addition, we are addressing the balance sheet through decisive action as shared today. I'm confident the immediate and decisive implementation of these measures I have discussed today can reset Sasol's capital structure and align it with a cash generation of our global asset portfolio in a low oil price environment. I believe that the future Sasol will have strong value proposition with the capacity to deliver returns to shareholders from our portfolio and generate sufficient cash for strategic growth and a sustainable future. We remain committed to what we can control to our employees, stakeholders, ensure energy security and dedicated to our environmental goal throughout this process. We are confident the combined package of measures will align the cash generation of a competitive asset portfolio in a low oil price environment with our stakeholder commitments. Before I close, I would like to thank all our stakeholders for their support and particularly our employees in Sasol, who have demonstrated their commitment through their tireless efforts in ensuring Sasol is focused on the outcomes within our control. Thank you. Let me now turn it over to the operator for questions.

[Operator Instructions] The first question comes from Wade Napier of Avior Capital Markets.

With the timing of asset sales very uncertain, can you give us an idea of what sort of targets you need to hit in order to gain leniency from your consortium of lenders with regards to the December 2020 net debt-to-EBITDA covenant of 3x? And then my second question would be surrounding Lake Charles and its profitability. You've sort of discussed the resilience of the foundation business within current oil markets. Could you potentially give us an idea or an update on what you think Lake Charles could be doing in terms of EBITDA in FY '21, given the sort of decline in oil prices?

Okay. Thanks, Wade. I think we're going to start with the first one. Paul is going to address that, and I will start with Lake Charles and then hand over to Paul again.

Good afternoon, Wade, and good afternoon, everybody on the line. So your question then refers in terms of the covenants. And maybe just broadly answering seeing not early on process because I think the question will come up later. We are currently in active discussions with our bank consortium to discuss an uplift in covenants. That process is ongoing and very much similar to what we had mentioned last year to you when we discussed that and ultimately, increased it. It's normally a process that takes 4 to 5 weeks. We have actively started with that process so long. And based on the plans that we have derived, those will be shared to the banks in a fair amount of detail that must go to the credit committees. And then based on that, the banks then ultimately need to apply the approvals to us. We've anticipated round about first week in May. Thereabout, we will be able to come back to you and officially update you in terms of the outcome of such a process. The second part of your question then relates to say, okay, so how much asset -- how much is the asset disposal proceeds reliant on us actually achieving the covenant as at the 30th of June? And basically, on our 3 stage, which is quite important that we actually don't take any asset disposals into account other than where we know the cash will flow. So there -- it's not any more substantial from our base case planning that we've mentioned to you before. In those circumstances as well as all, say, below or close to $30 to the barrel for the remaining months, we do believe that we will be able to manage the covenant to well below our covenant levels. Obviously, we have factored in some of the management actions, which we believe has a very high probability. I will say 90% probability of realizing. That is taken into account into our planning. And taking that into account, we then effectively are comfortable that, I will say, at today's spot prices in oil, if that continues, we will be able to manage the balance sheet well within the covenant level without any reliance on asset disposals other than what we've communicated to you before.

So with respect to Lake Charles, over the past couple of months, we've indicated that we had a positive contribution in the month of February after a very much breakeven in Jan. So that also came about because we could run the cracker at the utilization rate above 90% for the month of February. Even with prices now being softer, we still believe that, that would be a positive contribution from the LCCP going forward in the next month. And we factored that also in, in terms of the softness of prices and the outlook in the immediate future. Wade, I think that's...

Yes. That's great.

Yes. Please go ahead, and then we move on.

Okay. Maybe just a follow-up for Paul. So Paul, you're saying with the identified savings, $30 a barrel oil plus your known sort of asset disposals, you think you can beat -- you can sort of come in below that 3x net debt-to-EBITDA covenant by December 2020?

Wade, the 30 June covenant is at 3.5x. That's the covenant that I'm referring to that will come in at below that covenant level. At this point in time, there will be a form of asset disposals required for us to come in below the 3x covenant level as at the end of December.

The next question comes from [ Gerhard Engelbrecht ] of [indiscernible]

Just a couple of questions. You talk about conditions that need to be met in order for the banks to underwrite the right to issue. Can you be a little bit more specific about what those -- what the -- what those conditions are, firstly? Secondly, I'm quite curious as to the $2 billion savings for F '20 and F '21. I can get to the F '20 savings through a lot of working capital optimization. Can you give us an idea of how much on capital spending you need to save to get to the $800 million? And then -- but 2021 is also an issue to get to $700 million savings and assuming oil prices remain low, how much of that $700 million is working capital and CapEx? Because it's difficult to see how working capital reduces further. And then maybe can you just be a little bit more specific in terms of the $200 million and $300 million cost savings. What are those? Is that headcount reductions? Can you actually do headcount reductions and severances? What's the nature of those savings?

Thank you, Gerhard. We'll deal with the first 3 questions with guidance from Paul, and I'll deal with the last one.

Gerhard, so in terms of the conditions precedent for the right to issue, there are a couple that we agree to the banks. I'm going to really highlight the most significant ones that I think has quite a ban on this conversation. Firstly, we did reach and also stated in our sales announcement that we need to make some progress with regards to our asset sales in order for the banks to support us in the underwriting. So ultimately, in terms of the previous targets committed to in terms of the $2 billion of asset disposals, the banks want to see us making significant progress in terms of ramping those up in order for them to continue supporting us in the underwriting. Obviously, they do know and they have had fight in terms of the progress that we've made that's maybe not always known to the market in terms of that. So that is shared with them. Secondly, a ratings downgrade will also affect the underwriting, and let me be quite explicit about that. So Moody's downgraded us to sub investment grade. And as per the agreement with the banks, they will allow us another notch downgrade by Moody's. And on S&P. S&P maintained our rating, but as a condition precedent, they will also allow S&P to downgrade us by 2 notches from our current level before they will -- effectively withdrawing from underwriting. And thirdly, as I do want us to continue progress and show progress in terms of our planning in terms of construction and completion on the LCCP as well as beneficial operation in startup of the LCCP. And then lastly, and I think this is also quite important is in the context of coronavirus, where there are any substantial force majeure that effectively impacts the delivery of our production that may have a impact on our results that will also be a condition precedent. There are some other minor ones, but I will say that those are the 4 big condition precedents that's been agreed with the banks. Hopefully, that's detailed enough. Then secondly, to your question in terms of saving realization on, let's say, what we call financial year '20 and financial year '21. So for financial year '20, ultimately, on the EBITDA side, as you said, you can relatively quickly identify a couple of items. Let me be quite clear. We've been very consistent in what we've done with our response plan, in terms of the buckets or line items that we targeted then. We will be in a similar vein target the current same line items. We know how to do it, so -- and we've really identified the savings potential in terms of those. That's on the income statement. On the balance sheet, it will be a mixture of capital optimization. So we did look at our capital run rate that is maintained thus far and how we effectively and sustainably can optimize our capital spend rate. A lot will come from a delay or an optimization of that portfolio; and then secondly, it will be working capital as well. So you will probably recall at half year-end, we achieved a working capital ratio of 14% to turnover. We do believe that, that can be lower, and that will come about by the mere fact that your feedstock cost is lower in this environment. That will give you some benefit relative to your turnover, but there will also be further optimization on savings that we will realize on the working capital line, so to say. So we have a high confidence in financial year '20 savings, there will be a combination of that. I'm not going to split out the balance sheet numbers, I think we want to kind of just retain a little bit of flexibility in terms of what will be long and on what line item, but we feel comfortable that the achievement of the target is quite realistic. Focusing on financial year '20, again, there will be a mixture of sustainable and nonsustainable savings for financial '21 on EBITDA. There are some more work that we need to do, specifically on the sustainability of savings, which Fleetwood will speak to just now. But again, very much in similar line, we believe, that those line items targeted during a response plan will also realize on the EBITDA line. We ultimately need to do some reshuffling of the portfolio on the capital side. And again, we need to kind of be quite interactive with key stakeholders such as government, where we consider potential delaying of certain capital projects in the environmental space. So based on our interaction with government, we will reshape that portfolio. And also around year-end, when we report, give you more sense of what will shift, and kind of how did we align with key stakeholders with regards to that. I must say that, that process has started already, and we're making good progress, and then ultimately, further working capital optimization. So again, the high level of granularity on financial year '20 savings with only 4 months left, we do believe more work is required for financial year '21, but good progress is being made. But the balance sheet items need specific focus and alignment still, but we believe quite achievable. And then for financial year 2022, I'm going to ask Fleetwood just to give you a sense of how do we value around our sustainable savings going forward.

So, [ Gerhard ], your last question was really to ask how the $200 million that we target for the savings in this financial year [ 2020 ] going to materialize, correct?

Yes. And how does that affect the sustainability of the business?

Yes. Okay, cool. So we have identified a number of specific actions that we are now implementing. And to be more specific, there are some studies costs and consulting fees that we can help immediately. We're also stopping spend on all nonessential projects such as IT system upgrades as well as stopping all nonpermanent labor and achieve those savings where it makes sense. We're also looking at the total headcount freeze globally for Sasol, and we're also in consideration of not paying certain SPI incentives in this financial year for certain role categories in the organization. So it's a comprehensive review of all costs that's remaining in this financial year. And the items that we've identified is possible, feasible and practicable, and it is not going to impact any of our focus with respect to safety and asset integrity, which remains a first and a top priority.

The next question comes from Chris Nicholson of RMB Morgan Stanley.

I'm intrigued by your comment that you believe the foundation business can be free cash flow positive and sustainable in this low oil price environment. I wonder if you could make some comments specifically in relation to Secunda Synfuels. If I look at your last 20-F, I think the cost of production you published in there was ZAR 580 a barrel. And I understand that, obviously, it's an exchange rate and a refining margin effect in there, and that would have been before CapEx. Specifically, do you think that Secunda Synfuels can be run in a profitable manner in the type of a sub ZAR 580 a barrel type oil price environment? And then secondly, the measures you've announced today, by what percentage roughly would that expect to be able to drop Secunda Synfuels breakeven by?

Just the last question, Chris, can you just repeat the last sentence?

Sorry, yes, Fleetwood. The measures you've announced today in terms of cost savings, by what percentage or how much do you think that's going to be able to drop Secunda Synfuels kind of breakeven oil price or breakeven level by through [indiscernible]?

Okay, cool. Thanks. You'll deal with that, Paul?

Thank you. Good afternoon, Chris. You're 100% right that ultimately, in the past, we have published that Synfuels is cash breakeven, sits at the $35 to the barrel level. And the fact that we do have some issues at mining that require more coal to be purchases -- or to be purchased, automatically has a increasing impact on financial '20 on that number. So ultimately, Chris, I've asked my team to do a detailed calculation on the integrated Synfuels value chain. And at a ZAR 520 per barrel, or let's say, $35 crude oil price and a ZAR 14.65. I think that's a very important number because Synfuels are quite reliant on also a weaker exchange rate. That really benefits Synfuels quite a bit. So if you'd bear with me, in our analysis at $35 oil and at a ZAR 14.65 dollar to the exchange rate, we do believe that even after sustenance capital that on a cash basis, Synfuels will be, let's say, between $200 million and $400 million out of cash effectively. So that's off the sustenance capital on the balance sheet because you need to look at free cash flow from that perspective. On a pure EBITDA basis, it's quite positive, still, in a low oil price environment because you have to consider also the impact of [ MEG. ] You also have to consider the impact of the chemicals value chain contribution as well as the refinery contribution that Synfuels has. So there is the whole comprehensive exercise to say, okay, what is it free cash flow after you've actually paid your sustenance capital? Now then once you know that, the question is, okay, how much do I need to solve for in terms of my management actions to ultimately address this issue and ultimately be, on a cash basis, be positive. So the targets that we are pulling out ourselves from an income statement as well as from a balance sheet perspective in terms of the $1 billion in each year for '20 and '21 will -- a large component thereof will be targeted at the South African value chain as one can expect and ultimately -- will have an impact, ultimately, on Synfuels. If one can assume that 70% of our business in Sasol is in that value chain and $1 billion is realized, and you factor it in effectively on these numbers, Synfuels then -- the integrated Secunda value chain should be then returned to positive territory with the contribution of their savings. Hence that's important that also then, over the next few years, ensure that we position ourselves towards being profitable in a low oil price environment, specifically targeting this value chain as well. So the -- let's say, the '20 and '21 actions will be targeted mostly in this value chain. It will definitely be targeting and keeping this value chain cash positive. And then longer term, this value chain also needs to be quite cash positive in a sustained low oil price environment.

The next question comes from Alex Comer of JPMorgan.

Yes. A couple of quick questions. Just with regard to what Gerhard said. Maybe you could just tell us what your current estimate is for CapEx in the 2021 financial year? And what your P&L savings will be in absolute terms? Also with regard to some of the things you commented on $25 a barrel, et cetera. Obviously, refining cracks are collapsing at the minute. I just wondered if you could let us know what your assumption is for refining cracks? And then also, it's all right sort of talking about $25 a barrel, but there is a fair risk that oil storage gets filled, and we could see oil down another sort of $10, $15 maybe. And I'm just sort of worried with regard to these disposals. You say you're making progress on them, but clearly, you're now a very distressed seller. Credit markets aren't great for everybody. So I'm just surprised, you're so confident that you can make these disposals. And then one more, if I might. When you talk about selling the U.S. or partnering the U.S. Base Chemicals business, I mean, you're effectively looking for partners in the LCCP polyethylene business or what does that extend to?

Okay, thank you, Alex, and good afternoon to you as well. I'm going to ask Paul to deal with the first 2, and I'll deal with the last question.

And can I just -- I got your second question on the CapEx side. Can you maybe just quickly repeat it? Sorry, I was a bit slow, I couldn't...

Yes. So just let me, Paul. So you've given a number, I think, targeting ZAR 30 billion of CapEx in 2021, prior to these moves. I'm just asking you, what do you expect the CapEx number to be for 2021 financial year now given the, say -- given the expected delays in spending?

Okay. Thanks for that, Alex. And yes, we will obviously target our capital number for financial '20, as we said. It will be well south of the ZAR 30 billion, so a substantial contribution of that number will come from that capital portfolio. We will -- ultimately, within that guideline that we provided to you in terms of balance sheet savings, a large component of that will ultimately be capital. So we will, more closer towards year-end, provide you with exactly what that number is going to be, but you can assume that a large contribution will come from that. On your second question in terms of crack spread, yes, I do agree with you. Crack spreads are really under pressure, and I think will become more under pressure. The range that we've used on our crack spread was more closer to $5 to $6 to the barrel in terms of white product -- of product crack spread. And ultimately, we'll keep on monitoring that and see whether that is not maybe to -- even too bullish and adjust it accordingly. In our first phase, we actually did go even further down on those crack spreads, but that's basically on a base case what we've taken into account.

Yes, Alex, in terms of the disposals, yes, we are aware that there might be concerns that it is disposals in a distress situation. We have done quite a lot of assessment in assessing the whole asset review process, which clearly gave us a very insightful view of the inherent value of these assets that we talk about in terms of disposals. Remember, as part of our announcement of up to $2 billion, we were very clear, and we know which are those assets in terms of that we target. We also have done and modeled the value with the newer or the latest price sets. And of course, we have to interpret whether we still can obtain shareholder value or fair shareholder value for letting those assets go. And I think that is why we say we've got flexibility between the equity raise and the asset disposal, and it's not that, that one is given at a certain amount, and the other one is given at a certain amount. We may exceed substantially our $2 billion target. If we're coming at our $2 billion target, we have to look at the rights issue up to the $2 billion. So I mean there is a bit of flexibility. We don't want to make the shareholders pay in terms of the equity issue or the rights issue if we haven't achieved really fair value on the asset disposal. So that balance is there, and we're very cognizant of it. Coming back to your second part of that question is relating to what are we looking at partnering in Lake Charles or rather, as we put it, it is not only Lake Charles, it is part and parcel of our U.S. Base Chemicals assets. And that is primarily focused on our polyolefins value chain, meaning it is mainly the ethylene as well as the polyethylene assets.

I mean, Fleetwood, I mean, it's all right talking about intrinsic value and $2 billion disposals. But as we stand today, your market cap isn't $2 billion. So I mean I'm just struggling still to see who's going to come and help you out here in terms of disposals. I mean have you got -- with regard to the discussions you're talking about in the U.S., are you able to let us know who the potential partner is?

We are -- we will be in a position once we have assessed and received the details of offers. At the moment, it is in progress, and we are not in a position to divulge the names of these partners that we're talking to.

Alex, Paul here. I think a very important question that you asked, and ultimately, maybe just 2 points to add to this. So ultimately, in terms of our portfolio of assets, we have a number of assets that we've identified that's potentially available and up for sale. I think what is quite important in the process like this that from a -- just from a basic governance perspective, one has to have a clear sense of what you believe the value is in terms of that asset. Through that process, obviously, specifically with regards to these bigger assets, you have advisers that you also appoint to advise you in terms of what they think the market value is for your asset. And then you have the buyer that ultimately gives you a sense of that. I think we are very cognizant to the fact that ultimately, yes, maybe that seems that ultimately, we august the seller. Our view is we need to kind of be cognizant to say what is the true value of this asset over the long term. Yes, we have a short-term issue that we need to deal with in terms of lower oil prices. But again, from a liquidity perspective, we can weather the storm. So ultimately, it's not as if we have to sell it tomorrow to actually sustain the business. So we'll utilize untapping on our liquidity position. We will lever these short-term cash flow savings that we've spoken about, and that will kind of put us more on the forefront to ensure that we do derive the right value and that we've got optionality. So it's a little bit of a different conversation that maybe is out there to think [indiscernible] seller, and we really need to -- as a management team need to make it clear. We cannot sell good assets at far below the fair value.

The next question comes from Sashank Lanka of Bank of America.

So my first question is, can you talk about your oil hedging policy as we talk about you potentially introducing the new hedging policy? And Fleetwood, just following up on the U.S. Base Chemicals asset sale. If you were potentially looking to sell a stake in the LCCP, can you talk about how you would position for a sale of the Base Chemicals business there as you do have Performance Chemicals as well like MEG being produced on the same plant? So I'm just trying to understand how the dynamics of the sales would work there?

Okay. Thank you, Sashank. So Paul will deal with the hedging, and I will deal with the second item.

Sashank, so on the oil hedging policy, we haven't changed policy. The policy is exactly that same financial risk mitigation policy. What we've said on the roadshow that we are considering the [indiscernible] options. Previously, we would've used only put options. And then ultimately, we did say that we can consider forwards -- lease up forwards as well as zero-cost collars, in terms of the execution methods or instruments to kind of predict the financial risk. Again, safe to say that we were in the market for all ages before the collapse. The risk in the market was just too high, and we were not able to fill the positions that we've had for a number of days in the market. So where we stand now? The world is very volatile and uncertain still. And again, we are reverting more to a put option structure because if markets do move quicker to the upside, we don't want to give the upside [indiscernible] to shareholders, specifically at these levels. So ultimately, we are targeting still the 80% of the Synfuels volumes to be hedged, which gives us around about 6 million barrels per quarter. We are putting -- the put -- or utilizing the put option structure and targeting above a net price of about $30 to the barrel with a premium not more than $3 to the barrel. So if it means if you can get a $33 at a $3 premium, that's kind of the minimum that we're willing to accept. The team has been busy in the market. As you can expect, it's been quite volatile. And a number of 3 million barrels out of the 24 has been hedged thus far at an average price of slightly more than a net of $31 to the barrel. We will continue to monitor market opportunities, but it still leaves us a bit open still on oil prices. To that point, if I can maybe because you haven't asked that, but let me just volunteer that. We've always spoken to you to say we need a certain rand per barrel price to service our balance sheet. So we have increased our cover ratio on rand/dollar from 70% to 90%, 9-0, and that have been actually quite successful to actually get much higher levels of flow levels on the rand/dollar exchange rate. That will ultimately help us, specifically given these covenant periods, to actually now be less exposed to a rand below, I will say, or close to ZAR 15 to the dollar, specifically in the 12 months out period that our covenants become more stricter, and that's taking into account that we haven't negotiated those yet. So we've upped that level, which then gives us a lower reliance or less reliance on a lower oil price. On the income side equally, we've also increased our cover ratio to around about 75% and again, we -- ethane trades today, we definitely utilize those opportunities to ensure that we lock in ethane at the second level. If the liquid production of natural gas liquids in the U.S. gets disrupted and production is halted in -- or kind of cut back quite significantly, it can have a significant impact potentially in terms of ethane price increases. And we do believe our strategy and the increase in the cover ratio has kind of been specifically very much playing to that future risks that might play out.

Sashank, with respect to the reference on how do we think about the Base Chemicals assets in terms of partnering. So as I've said, our Base Chemical assets comprise of the ethylene crackers, the polyethylene plants and what we are considering is to form a JV with such a partner for up to 50% of the capacity of such assets.

The next question comes from Henri Patricot of UBS.

Two questions, please. The first one on CapEx. To follow up on your previous comments because I was under the impression that you already cut or postponed old growth projects for the next couple of years. So I was hoping you could give us a bit more detail as to exactly which projects you've postponed further, both in full year '20 and full year '21 to achieve the same you discussed today. And then secondly, on the disposals. I was wondering if you can give us some sort of indication of how much of that $2 billion target you have line of sight on by the end of June and by the 2020, and then to the full year 2021 at this stage?

Henri, I think your question -- most of your questions relate very much to what Alex Comer asked. And again, I'm not going to repeat what I said. We are busy with the review of the financial '20 portfolio as well as '21. We are engaging with stakeholders to consider what projects to delay and to reprioritize. Once we completed those, we will then update you in our results presentation during August in terms of exactly what those ones are. So they are active processes in terms of behind that. And also within the organization, yes, you are correct, we're already running very lean and mean capital portfolio. So ultimately, we really need to go with it -- we come through all those projects, but we do believe it is achievable, but we need to make those informed decisions and also involve the stakeholders. So those are the objectives that we set out. We will exactly tell you how we're going to do it, what it does to our risk profile, but again, the principle is still to run safe and sustainable operations and to preserve our asset integrity. Those principles still stand. I will say it's safe to say that growth capital is virtually eliminated in all of this. So it will really be focusing on how do we reshape and optimize Sasol's portfolio. And of course, it also forces us to be even much more effective and efficient to lever savings in this regard. Talking to asset disposals, we had given you a sense when we spoke to you on the road show that what we know is that we're approaching the -- above $500 million. That still stands. The other talks that we are busy with, I think, you need to give us a little bit more time over the next couple of weeks to see where that goes. And once we kind of get that clarity, we'll obviously update this target, but it is subject to the outcome of such discussions.

The next question comes from Paul Burkhardt of Bloomberg News.

I wanted to know if you there's -- if you could give any range in terms of this partnering that you're looking into with U.S. chemical operations. Could that -- would that potentially raise or lower the overall $6 billion figure that you're targeting? And then specifically on the rights issue, up to $2 billion, I mean, is there -- are you also looking at a range there? Could it be much lower than that? Is that just a ceiling? And any detail on that?

Thank you, Paul. Paul is going to answer that for you.

So yes, a good question that you asked. I will say that, ultimately, what we are targeting is currently our debt level on the balance sheet all converted to dollars, is around about $10 billion of debt that we have. So one of the key targets that we have in all of this is to pay the debt down by at least $6 billion to ultimately leave us with around about a $4 billion debt level by the end of financial '21. And then ultimately, one needs to say, okay, so what will be the suite of options and the order in which you plan to actually pay down that debt. Now from a first priority perspective is on management Sasol measures, those we believe is a must to deliver in a safe and sustainable manner, and that's the $2 billion that we referred to. So that must happen. And then second to that is, before you issue any equity, you need to look at your asset portfolio and see what assets at closer to fair value you can sell. And ultimately, we do believe that -- and we did indicate to the market, we see the opportunity there well north of $2 billion. Of course, if you partner in the Base Chemicals business in the U.S., it does afford you that opportunity to actually substantially lever benefits. And it may even allow you to fill the whole $6 billion of the remaining $4 billion from those asset disposals, depending on the size of the partnering as well as the other assets that you plan to sell. In a case like that, you don't need equity. So I think what our pledge to all of this will be is to see what progress we are making with our cash flow initiatives, the progress that we are making with the asset disposals before we then consider potential equity issuance. Now of course, if you are only able to deliver the $2 billion cash savings and only able to deliver $2 billion of asset disposals, and you want to get to $6 billion, you do the math, you need a $2 billion equity raise. But we're very sensitive to the fact that equity raise or potential equity raise is really, really the last resort for us. We want to kind of see how much we can lever from our asset disposal program as well as our cash flow initiatives, and we're quite hopeful that we can steer towards that path. I think it's safe to say that the quickest that we need to make a decision on a potential equity raise is only around about July when AGM needs to be called, which still gives us time to see progress on these first 2 levers, which I spoke about. We've got sufficient liquidity, as I've said, for the next 12 to 18 months even in low oil price environment. So it does give us time to carefully consider and position around these different options that we have. Hopefully, that's clear enough.

The next question comes from Faisal Al Azmeh of Goldman Sachs.

Just 2 questions on my end. When thinking about the debt covenant levels that you're kind of targeting to achieve with the consortium, what levels are you targeting for June 2020 and December 2020? Just to get a sense of what levels are you trying to move it up to. And then the second question is, when we think about the comfortable level that you are at for June and being below 3.5. What kind of rand are you factoring in on the balance sheet side? Just obviously, the rand has kind of weakened quite a bit now. And then when we think about the dollar exposure that you have on the balance sheet and using the current kind of levels might actually push you above the 3.5, maybe I'm mistaken there, but that would be quite helpful.

Okay, cool. Will you deal with that, Paul?

Thank you. So basically, the 2 questions that you asked on debt covenants, I think it will be foolish for me to give those levels. But maybe on the principal level, is that ultimately, I think one needs to get a sense of what your covenant levels will be if none of these savings or asset disposals actually materialize. Those will be our kind of -- our base case that we want to engage with the banks to allow us that flexibility in terms of managing this. I think we can also prove to the banks that we've got sufficient liquidity, and we can actually sustain in a low oil price environment as well as having a financial risk mitigation strategy in place. So on the strength of all of those, we do believe that it's in all parties' best interest to consider the most flexible covenant arrangements. This will be the third time that we ask for leniency on the banks, and ultimately, we need to make sure that the flexibility is sufficient, so that we don't repeat this process. We are quite hopeful with this approach that we will get to an adequate and feasible landing with our banking partners, which have been very supportive to Sasol mostly during this whole process. So give us another 4 to 5 weeks, as I said. First week of May will probably be a realistic target for us to target coming back to you, if all goes well, and then we'll update you. But my team has made good progress to initiate and drive this process. The second part of your question, which I think is a very fundamental one, and here, again, I want to be quite clear. It's more of a stress test that we are looking at. So we've got a base case. Our base case indicate that we will, even in a low oil price environment, be quite agile and flexible in managing well below our covenant levels. But -- and I've said it many times to all of you during the road shows, our concern is where our average EBITDA is at a certain run rate, and something happens at year-end, and all of a sudden, there is a disconnect between the year-end closing rate versus what we then see on the average run rate. So what we've used in terms of our average EBITDA run rate for the next 4 months is effectively a $35 oil price with a ZAR 14.60 to ZAR 14.70 rand/dollar exchange rate. That's for EBITDA. For the closing rate, we stress test it against a ZAR 17 closing rate to say if the rand closes at ZAR 17, but we only maintain the EBITDA run rate at ZAR 14.65 there or thereabout, can we sustain that and be below 3.5x, and our analysis indicate that we can.

The next question comes from Rahul Bhat of JPMorgan.

I just have 2 questions and probably the first one is on the asset sales side. And I guess it's just -- I'm also finding it tough to fathom how you can sell some more than $2 billion of assets, then you would probably want the assets to be sold at a long-term oil price, probably $50, $60, and a buyer would want to buy $20, $30 per barrel probably. So the question is essentially, if you end up -- if you see that you can sell only $1 billion, can you up the rights issue to $3 billion to make the math work? That is the first part of the question. And the second part of the question is, you are planning to take the -- pull the gun on the rights issue in second half of this year, while your target to sell the assets are only by end of FY '21. And then again, on the second part -- second question is more on the rights issue side. Are you thinking about getting some kind of anchor investor to anchor a rights issue, strategic investor from, I don't know, another sovereign wealth fund or something like that? Is there any discussions on those lines that could also anchor the rights issue?

Thank you, Rahul.

Thank you for those 3 questions with regards to the rights issue. And I'm going to say very much the same as I said to Paul from Bloomberg, very much in the sense that where we find ourselves now is, it's quite important that we execute on our self-help measures, which we believe has a high probability of success, then execute on our asset disposals which we have sought off and ultimately, have an assessment of potentially how much cash we can lever, and then only we need to kind of consider equity raise. Now your question is to say that, ultimately, we save no more than $2 billion of equity. And ultimately, the $2 billion of equity only with the self-help measures from the management side with no asset disposals other than what is announced, we believe can also be sufficient. It's going to be tight, but it will still be sufficient to actually manage and sustain the business going forward. So we have looked at the various scenarios in terms of the interplay of assets sales, the cash flow levers, the liquidity position as well as the ticket size of the equity. And at this time, we feel actually quite comfortable with the equity ticket size not more than $2 billion. But it will be dependent on the delivery of the 2 other buckets, which we will obviously, from a management accountability perspective, pursue quite rigorously. I think you need to allow us the time to do this. We will update you again in July in terms of where we stand and our port of call in terms of that, but we do feel comfortable where we stand now that this is the approach that we want to follow.

The next question comes from Herbert Kharivhe of Investec.

Herbert here from Investec. What are your assumptions regarding chemicals volumes in terms of how much will you sell? In a COVID-19 environment, it is quite difficult to try and determine further downstream kind of activity to expect? From a fuel side, I think there is no argument there. We are net importers of fuel and that still has a market. But there a lot of question marks around chemical sales volumes given the COVID-19 containment measures.

Thank you, Herbert, I'm going to ask Brad to give you a view on our chemicals volume amidst COVID. Brad? Okay. Whilst we're checking in for Brad, the current view is that the base chemicals supply could be impacted by the logistics globally. So we are cognizant of a possible slowdown in demand, so that may impact volumes. We have, on the other hand, in terms of our specialty chemicals, we have seen lesser sort of an impact of COVID. As a matter of fact, some areas in terms of surfactants and specialty cleaning materials, it has indicated some resilience in that regard. So I think we have to monitor the situation. At this point in time, we stay close to demand developments amidst COVID, but I think no one really understand how that will progress in the various market regions, but we will closely monitor in terms of how that develops. At this point in time, we have taken some haircut in terms of volumes or pricing in terms of our modeling, and we believe that may cater adequately for softness in demand as well. Thank you.

In terms of the percentage NOC, are you able to give some color in terms of what is the decline on demand front?

I think there is no specific percentage that we would like to share. Suffice to say that we believe we can move all product from a chemicals point of view, not to constrain any Synfuels production from a fuel perspective.

[Operator Instructions] The next question comes from Chris Nicholson of RMB Morgan Stanley. We're not getting any response from Chris' line. Next question comes from Ed Stoddard, Business Maverick.

I just want to check 2 things. I just want to ask, given the current pace of events, how quickly they're unfolding, is there any chance that the rights issue could actually be brought forward from July, August? I guess August is when you will be unveiling your full year 2020 results. And I'm also just wondering, is there any prospect of a shutdown of your mining workforce here or your refineries. Do you consider that the potential possibility? And what would be the impact on your business?

Okay. Thank you, Ed. Paul will handle the first question.

The one issue, a rights issue, there are SEC requirement as well as regulatory requirements, if it's not an SEC registered issuance, which one needs to consider. So from a timing perspective, the quickest that you can issue a rights issue within the regulators' requirements is during the August, September time frame. That's the first opportunity. And the reason why it's not of a concern to us, twofold: markets are just too volatile at this point in time, and it will not be in best interest of shareholders to do so. We don't have a liquidity squeeze immediately. We can sustain our operations for the next 12 to 18 months in the lower price environment and actually work the other solutions up. So at this point in time, it will definitely not be in shareholders' interest for us to pull the trigger on the equity raise. And if we can prevent it, then ultimately, that's also still the objective for us as a company.

Ed, with respect to the second part of your question, are we planning to idle refineries? I think we've indicated earlier, South Africa remains a net importer of fuel. So I think what we are keeping a very close watch on is whether the jet fuel demand is decreasing in terms of our local offtake. So that means that if that takes place, we have to moderate the output of our Natref refinery. And so -- but that does not mean a shutdown case because we can use some of the jet fuel components into our diesel blend. So that is still the base case, but it may impact a moderate volume impact with respect to the inland refinery. But I think the net case is still that South African import fuel, and I think that -- in that position, the country will need its refineries to run.

Right. That's right. But -- the country will need its refineries to run, but there is a possibility that your workforce might not be able to go.

I think that is true for all refineries in South Africa, and we have put some specific coronavirus proactive measures in place. And I'm going to ask Maurice just to elaborate a bit in terms of how we think about this at our operations and share some thoughts with you in this regard.

Yes. Thank you, Fleetwood. Obviously, as with most other global companies, we have been ongoing in terms of getting proactive actions out to all our operations where we can, working from home for the more nonoperational or all of those activities are in place. So in terms of our operations, I think, just to give some insight, so we have quite segregated mining activities. We've got in excess of 60 sections. So what we try to do is really, from a business continuity point of view, see how we can manage those groupings quite effectively and make sure we have proactive measures as far as we can in terms of monitoring and measuring where we can to deliver. But obviously, the community impact is still a concern. If some community impact will play out in our space, if there's anything, we'll be watching closely, and I think we've quite active risk management in place at the moment. So from a mining side, we are still positive at this stage. Also our operations in South Africa, I think, we've done a lot to say, what are the most critical roles, and how do we make sure we can really isolate groups, if required. So it's an area we watch quite closely at this pace, but we, so far, are quite positive with the proactive actions that we've put in place.

Okay. Thanks, Maurice. Thanks, Ed. We're going to move on. In the interest of time, I would like to spend another 5 minutes, and then we're going to conclude the call. So we can move on, operator.

The next question comes from Kay Hope of Bank of America.

You've mentioned Sasol's liquidity a couple of times, and I know that in the press release, it said it was approximately $2.5 billion. And so I wanted to ask, what is the format for that $2.5 billion? And then likewise, you've written that there are no significant debt maturities before May of '21, but I've got, I think, just over ZAR 18 billion of short-term debt. What is the format for that, please?

Okay. Thank you, Kay. Paul is going to deal with that question.

Okay. Thanks. We basically -- when we're looking in terms of our liquidity position, where we stand today is the $2.1 billion that we have, and that is made up by a mixture of RSA facilities as well as U.S. dollar facilities. So from the $2.1 billion perspective, we've got around about $800 million of dollar facilities. And then ZAR 21 billion are converted to dollars that will ultimately make up the range in terms of the dollar equivalent facilities. As we said that if one then project ourselves towards the 30th of June 2020 and even thereafter, we then work our liquidity out using $30 and a selling $35 per barrel oil price, with much more kind of stress thesis in terms of rand/dollar exchange rate and closing rates. And still within this lower oil price environment, we are able to maintain, I will say, close to $2 billion in both instances of liquidity hedging. And as our strength really becomes when oil prices for prolonged periods of time go below $30 to the barrel. And in a case where the rand remains strong. And those cases is where we believe the fact that we have hedged the rand as well as consistently and systematically putting a oil hedge in place to prevent oil price below $50, it will help us to sustain these shock events. So there is a mixture between dollar pools and one is rand pools and also being stress test in terms of the 2 scenarios. Then on the debt maturity, we have a syndicated facility that we've negotiated last year with banks that has -- or consortium of banks that has a kind of a rolling mechanism of 18 months when we negotiated it in terms of debt maturity. We plan to go to the debt markets in the next 12 to 18 months to raise debt. Ultimately, this current window was just too volatile, but we'll definitely look at the next couple of windows ahead of us to raise the debt to then ultimately pay off against that syndicated facility, but we have some flexibility there. Beyond that, there is effectively -- I think it's early moment in 2023 -- '22, yes, we're looking at bond as being due.

Okay. Thank you, Kay. Thank you, Paul. Operator, in the interest of time, we're going to take the last closing question.

The last question then comes from Fifi Peters of CNBC Africa.

Gentleman, could I just get some more details on your proposed plans to change your headcount? Exactly how many jobs are on the line here? And if you can just split that between your permanent and your temporary workers? Also, will these jobs be mostly in South Africa or elsewhere? You made a comment regarding certain incentives. Are these incentives for executives? And when exactly will you make the call as to what you do about them?

Okay. Thank you, Fifi. We are, at the moment, not giving any consideration for any employee job cuts at this point in time. That's the last resort to do in terms of our measures that we're implementing in the near term. We will, however, look at business optimization with due consideration of process to be followed, should that be an avenue that we will pursue. So I think it's premature to give any further information in that regard at this point. And secondly, incentives will be throughout the organization. Top management and above a certain roll category will be included in the mentioned -- or in the incentive cuts that I've mentioned earlier. So with that, operator, we're going to conclude the call this afternoon. I would like to thank everyone for their participation and the questions raised. So until we speak again, thank you very much, and good afternoon.

Thank you very much, gentlemen. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.