Sasol Form 20-F for the year ended 30 June 2021 - Book - Page 17
The phasing out of LIBOR after 2021 may
adversely affect the amounts of interest we pay
under our debt arrangements and our ability to
hedge LIBOR exposures and as a consequence affect
our business, operating results and financial
condition
periods due to the effects of translating the functional
currencies of our foreign subsidiaries into rand at
different exchange rates.
Accordingly, fluctuations in exchange rates
between the rand and US dollar, and/or euro may have
a material effect on our business, operating results, cash
flows and financial condition.
Libor is widely used as a reference for setting
the interest rate on loans globally. We have used
LIBOR as a reference rate in certain of our revolving
credit facilities, term loans and derivative instruments,
such that the interest due to our lender pursuant to these
loans is and the amounts payable under these derivative
instruments are currently calculated using LIBOR.
During 2021, the rand/US dollar exchange rate
averaged R15,40, fluctuating between a high of R17,64
and a low of R13,44. This compares to an average
exchange rate of R15,69 during 2020, when it
fluctuated between a high of R19,11 and a low of
R13,84. At 30 June 2021 the closing rand/US dollar
exchange rate was R14,28 as compared to R17,33 at 30
June 2020.
Pursuant to announcements made on 5 March
2021 by the United Kingdom Financial Conduct
Authority (FCA), which regulates LIBOR, and the ICE
Benchmark Administration (IBA), which determines
and publishes LIBOR, the publication of 1 week and 2
month US dollar LIBOR is to cease after 31 December
2021, while the remaining tenors of US dollar LIBOR
will continue to be published on a representative basis
until the end of June 2023 and cease to be published as
representative rates thereafter.
The rand exchange rate is affected by various
international and South African economic and political
factors. Subsequent to 30 June 2021, the rand has
strengthened against the US dollar closing at R14,78
and against the euro closing at R17,32 on 20 September
2021. In general, a weakening of the rand would have a
positive effect on our operating results. Conversely,
strengthening of the rand would have an adverse effect
on our operating results, cash flows and financial
condition. However, given the significance of our
foreign currency denominated long-term debt, a weaker
closing rand against the US dollar has a negative
impact on our gearing. Refer to “Item 5.A—Operating
results” for further information regarding the effect of
exchange rate fluctuations on our results of operations.
We engage in hedging activities which partially protect
the balance sheet and our earnings against fluctuations
in the rand exchange rate. While the use of these
instruments may provide some protection against
fluctuations in the rand exchange rate, it does not
protect us against a longer-term strong rand/US dollar
exchange rate. Refer to “Item 11—Quantitative and
qualitative disclosures about market risk”.
It is not currently possible to predict the effect
of any discontinuation or change in the calculation
methodology for the other US dollar LIBOR tenors
after 30 June 2023, or how any such changes or any
alternative or fallback benchmark interest rates would
be applied to any particular existing agreement
containing terms based on LIBOR, such as certain of
our existing loan agreements and derivative
instruments. There is, in addition, the possibility of new
US federal legislation to make provision for the
consequences of the cessation of LIBOR on agreements
which continue to reference it. Any such changes in the
calculation methodology pursuant to which LIBOR
rates are determined after 30 June 2023 or the effect of
any new legislation may result in an increase in
reported LIBOR rates or a requirement, in certain
circumstances, to use specific alternative rates which
may be higher than the LIBOR rates we have been
using. If that were to occur, the amount of interest we
pay under our financing arrangements may be adversely
affected, which may adversely affect our business,
operating results and financial condition.
Although the exchange rate of the rand is
primarily market-determined, its value at any time may
not be an accurate reflection of its underlying value,
due to the potential effect of, among other factors,
exchange controls. For more information regarding
exchange controls in South Africa see “Item 10.D—
Exchange controls”.
Although we intend to agree an alternative,
market acceptable, basis with the lenders under our
revolving credit facilities and term loans, and with the
counterparties under our derivative instruments, to
replace the applicable LIBOR rates with another
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