EMELIA SITHOLE, Johannesburg | Tuesday
SYNTHETIC fuel producer Sasol said this week it was buying German RWE AG’s Condea speciality chemicals unit for 1.3bn euros ($1.16bn) in a deal launching the South African group in Europe.
The acquisition, which Sasol clinched ahead of US private equity firms Kohlberg Kravis Roberts and Bain Capital, would dilute Sasol’s earnings per share for the first two years, after which it was expected to boost earnings, the company said.
The deal was part of strategy to achieve global growth through acquisitions, joint ventures and alliances particularly through its alpha olefins, solvents and polymers businesses.
”It fits well with this strategy, provides a hedge against oil price movements and will also substantially increase Sasol’s foreign-derived income from the present level of 10% to about 35%,” Sasol Managing Director Pieter Cox said.
Sasol’s single largest overseas buy to date, the new purchase would be funded initially from cash resources and foreign bank debt, and would yield savings of 150m euros ($134.4m) a year. Later the bank debt would be replaced with longer term finance.
”Initially we will have a gearing of just over 40% and I anticipate that, given our strong cash flow, to very rapidly come down,” Cox said.
He said the group aimed to bring its gearing down below 20% within three years of the purchase.
Natasha Nalimuthu, an investment analyst with Metropolitan Asset Managers, said Sasol won the deal at the right time given the vulnerability of chemical companies with margins squeezed to their lowest levels by high input costs due to a high oil price.
”I think when the oil price gets lower then the margins will become wider and they will become more expensive. Sasol indicated much earlier that they were going to diversify their earnings stream into the chemicals unit so I think the acquisition was done at the right time,” she said.
Sasol makes the bulk of its profits from its synthetic fuel division which produces motor fuels and chemicals from coal, largely based on technology developed to alleviate a United Nations oil embargo during apartheid. – Reuters