Sasol Says Rand Swings Erode South Africa’s Competitiveness

Sasol Ltd. (SOL), the world’s largest producer of motor fuel from coal, said an unstable and unpredictable exchange rate for the rand cuts South Africa’s competitiveness.

The company gains 861 million rand ($94 million) in operating profit for every 10 cents the rand weakens against the dollar, Senior Executive for Global Chemicals Andre de Ruyter said in an interview today in Johannesburg, where Sasol is based. For every $1 increase in the price of a barrel of oil, the company gains 621 million rand, he said. The rand is the biggest external factor affecting the company’s profit, Chief Financial Officer Christine Ramon said in a presentation.

Central bank Governor Gill Marcus on March 8 said the rand’s decline beyond 9 to the dollar was overdone. The currency reached 9.1884 per dollar, the weakest intraday level since April 15, 2009, on March 7. The rand’s implied three-month volatility against the dollar is 13.1 percent, the most among the 16 major currencies tracked by Bloomberg.

“We are not in favor of a policy to let the rand devalue,” De Ruyter said. “It erodes the long-term competitiveness of the country. We are far more on the same page as the Reserve Bank governor’s to say ‘let’s keep a stable currency, a predictable currency’.”

Sasol’s profit declined to 13 percent to 12.1 billion rand in the six months through December as it wrote down the value of its Iranian polymers unit as it wrote down the value of its Iranian polymers unit, it said in a statement today. Earnings excluding one-time items rose 2.2 percent to 24.01 rand a share compared with 23.49 rand a year earlier.

Sasol Writedowns

The company wrote down 428 million rand at an unsuccessful oil well in Mozambique, and recorded a 1 billion-rand foreign- exchange loss, it said. The loss was primarily due to the Iranian rial’s depreciation against the dollar, Sasol said.

“The operating profit in the current year was negatively impacted by once-off charges totaling 3.6 billion rand,” the company said. “These items relate primarily to the partial impairments of our Arya Sasol Polymer Co. investment and the Solvents Germany business of 1.97 billion rand and 198 million rand, respectively.”

Sasol said Feb. 8 that it is in talks with interested parties to sell its stake in Arya, which it co-owns with Pars Petrochemical Co. of Iran, a unit of National Petrochemical. The U.S. and European Union are pressuring the country to curtail its nuclear program, which they say is aimed at developing an atomic weapon. Iran contends that its nuclear research is for civilian use.

Carbon Tax

South Africa’s Finance Minister Pravin Gordhan said Feb. 27 the country will impose a carbon tax of 120 rand a metric ton on 40 percent of a company’s emissions from 2015 and increase it by 10 percent a year until 2020. Sasol would like to see the 60 percent exemption increased, Chief Executive Officer David Constable said at today’s presentation.

Sasol is spending as much as $21 billion on a gas-to-liquid plant and a chemicals operation in Louisiana, the biggest foreign-direct investment in the state’s history, according to Constable. The company is also investing in Canada, Uzbekistan and Nigeria, as well as ramping up production in Qatar.

Sasol may approach bond markets regularly to fund its expansion in North America and may look at issuing further dollar debt, Ramon said.

The stock climbed for a third day, gaining 1.1 percent to 407.50 rand by the close in Johannesburg. About 1.16 million shares changed hands, or 67 percent of the daily average over the last three months.

To contact the reporter on this story: Jaco Visser in Johannesburg at avisser3@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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