Sasol outlook revised to negative at S&P on weak oil and chemical prices

Investing.com -- S&P Global Ratings has revised its outlook on Sasol Ltd. to negative from stable, while affirming its ’BB+/B’ ratings on the South African energy and chemicals company.

The rating agency cited macroeconomic headwinds and persistent weakness in oil and chemical markets that will likely constrain Sasol’s EBITDA and pressure credit metrics over the next 12-18 months.

S&P noted that global oil and chemical markets remain in a structurally challenged environment, with oversupply and muted demand weighing on margins and utilization rates.

Sasol’s international chemical operations face particularly difficult conditions due to demand softness across Europe and Asia, exacerbated by global overcapacity. These challenges are compounded by geopolitical tensions, high energy costs, and declining manufacturing activity.

The rating agency has lowered its Brent crude oil price forecast to $66 per barrel for fiscal 2026 and $65 per barrel for fiscal 2027, down from its previous expectation of $75 per barrel for both years. This translates to approximately ZAR 1,208 per barrel, compared with ZAR 1,585 per barrel in fiscal 2024 and ZAR 1,355 in fiscal 2025.

S&P forecasts Sasol’s adjusted EBITDA at ZAR 41.1 billion in fiscal 2026, improving modestly to ZAR 47.8 billion in fiscal 2027. The agency expects the company’s funds from operations (FFO) to debt ratio to decline to 28.7% in fiscal 2026, below the 30% threshold considered commensurate with the ’BB+’ rating.

Sasol has implemented several initiatives to strengthen its balance sheet, including operational efficiency improvements, cost discipline, and enhanced financial flexibility. The company aims to lift output at its Secunda Synfuels operation from 6.7 million tons in fiscal 2025 to over 7.4 million tons by fiscal 2028.

The company is targeting cost savings between ZAR 10 billion and ZAR 15 billion by fiscal 2028 and has committed to placing debt reduction ahead of shareholder distributions. Dividend payments will only resume when net debt falls sustainably below $3 billion.

S&P could lower its rating on Sasol if the weighted-average FFO to debt remains consistently below 30% with no near-term prospects for improvement. Conversely, the outlook could be revised to stable if Sasol’s weighted FFO-to-debt ratio improves sustainably above 45% on a weighted average basis while maintaining adequate liquidity.

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