Sasol, you have to be patient here

This morning we have a trading update from Sasol and perhaps it is not what you expect. They are basically waving goodbye to Iran and their investment in Arya Sasol Polymers Company (ASPC). According to Wikipedia, ASPC is one of the biggest polymer projects in the world. But, if Sasol want to be taken seriously in North America, then they have to ditch their Iranian asset. This is not new news however, this asset has been for sale for a while now. The only burning question however is, who is going to buy this business? I suspect that the other shareholder, the state owned petrochemicals company could offer them a discounted price, take it or leave it. The Iranians can't divest from Iran. And not too many people are friendly in the region, due to religious differences between Shia and Sunni Muslims. And ethnic differences too. I shall never attempt to understand religious intolerances of one another, I shall always steer away from that subject, it spoils ones get togethers. And I would like to think that I have friends everywhere of every walk of life. End of story before I trip over my own tongue here!


OK, back to Sasol here. Trading statement for the six months ended 31 December 2012 is where you can download the full release. The company cites a weaker currency as both a good thing and bad thing, in terms of costs. Overall costs however were also impacted by higher labour and maintenance costs. The story of South Africa, but we must live with this, the intention has been made clear by the powers that be that we do not intend to build a low wage and labour intensive economy. A client told me yesterday that every factory that he knew of in and around King Williams Town had closed over the last half a decade or so. And there used to be thirty plus. Uneconomical to run a clothing and textile plant, the loser I guess is almost everyone. That is another argument.


The guts of the announcement are as follows: "We continue to actively engage with interested parties to divest from our share in ASPC. During the current reporting period, the investment was impaired by R1 974 million based on our assessment of the fair value of the asset, which takes into account the uncertainty associated with the Iranian environment in which we operate. In terms of International Financial Reporting Standards (IFRS), further losses relating to the foreign currency translation reserve of approximately US$100 million may be recognised in income once we finally divest from ASPC."

So, another 100 million Dollars charge could be taken as a result of the weakening Iranian Rial at some stage. According to Wikipedia, and this does not really bode that well for MTN either, the Iranian Rial is the Least valued currency unit globally. The Zim Dollar is not on the list, that would be worse. That is not a list you want to be on, here is hoping to never making it, OK?


The Sasol statement continues: "There may be further potential impairments linked to the fair value of the asset as a result of a deteriorating Iranian environment and the accounting requirement to continue recognising operating profits, which might not be recuperated through the divestiture. Despite a solid operational performance by ASPC, results for the six month reporting period have been negatively impacted by the devaluation of the Iranian currency, which resulted in translation losses of approximately R1 015 million being recognised in the income statement."


That is about as awful as you can get I think. And perhaps it is best to push through as much as possible for shareholders at this point. It all ties back to that point that I made at the beginning of this piece. The Americans only care about investments if they have an American operating business. And that is what Lake Charles is set to change. It is going to be huge. Remember we wrote about it back in December: Sasol. This changes everything. Almost 190 billion Rands is what it is going to cost. That is roughly three quarters of the current market capitalisation. This is basically like moving all the chips in, if you are that way inclined. A bold move, a very bold move. But one that I suspect will pay handsomely. But. And this is the big but, you are going to have to be very patient as a shareholder. And, as we discussed with a favourite client yesterday, perhaps the dividend will go sideways for a while. Until then, wait for results around the 11th of March, a month and a weekend away.