SABIC chief calls for consolidation in Saudi petchems
SABIC chief calls for consolidation in Saudi petchems
The firms have enjoyed decades of cheap feedstock prices. But Saudi authorities began slashing subsidies in 2016, as a collapse in oil prices cut into state finances, prompting a search for efficiencies in the industry.
“This program is clearly defined to push companies for more efficiencies and bring them into a mode where they become more competitive with the global players,” Saudi Basic Industries Corp. (SABIC) CEO Yousef Al-Benyan said in an interview
Other Saudi petrochemicals firms should “look at ways and means to consolidate,” he said.
“If 2020 comes and you are not really a player with a global footprint ... and you don’t market your own product, I think it will be very difficult for you to maintain competitive positions.”
SABIC has already begun this process, completing an acquisition of the remaining 50 percent stake in its SADAF project from Shell Arabia in August.
It is also considering integrating three affiliates, SAFCO, Ibn Al-Baytar and Al-Bayroni, which are located next to each other in Jubail, eastern Saudi Arabia. The companies can share feedstock, maintenance and leadership costs, said Benyan.
SABIC is looking at possible acquisitions in North America, China and Africa in both the speciality and commodities portfolios, Benyan said, but declined to elaborate.
He told Reuters in May SABIC was evaluating opportunities in the range of $3 billion to $6 billion.
OUTLOOK AND PROJECTS
SABIC posted its biggest profit since the second quarter of 2015 this quarter, as a recovery in crude prices buoyed earnings.
Sales prices for core products were up an average of 5 percent and expenses were reduced, while losses at its restructured Hadeed division dropped by more than half, said Benyan.
The company’s outlook for the rest of the year and into 2018 was stable, he added.
“We have stability in crude oil prices, we have stability in GDP growth. I think this is very positive now, looking at 2018. I think 2018 will be more or less like 2017 for us,” he said.
SABIC is also looking to expand globally to diversify feedstock inputs and shield itself from oil price fluctuations.
Plans to build a polycarbonate plant with Chinese state oil firm Sinopec are moving ahead in China, where 70 percent of demand for the product is expected to be, said Benyan.
He plans to travel to China by the end of this year to finalize arrangements for both that project and a coal-to-chemicals venture with Shenhua Ningxia Coal Industry Group.
Benyan said initial plans for an oil to chemicals project with state oil giant Saudi Aramco were to build it in Yanbu, on the west coast of Saudi Arabia.
“I think this is a very strategic location. You can strengthen your position to Africa, to Europe. Jubail still has an option to grow, but I think the west coast is going to enable us not to concentrate all our assets in one location,” he said.
SABIC prepares to meet investors to offer bond
- The Kingdom’s petrochemical giant will be meeting investors in London, New York, Los Angeles and Boston from Sept. 25
- SABIC has also confirmed the appointment of BNP Paribas and Citigroup as global coordinators on the sale
LONDON: Saudi Basic Industries Corp. (SABIC) is preparing to offer its dollar-denominated unsecured bond to the global market with investor meetings due to start this week.
The Kingdom’s petrochemical giant will be meeting investors in London, New York, Los Angeles and Boston from Sept. 25, according to a filing on the Saudi stock exchange on Tuesday.
The Saudi company is likely to be keen to tap into the heightened international interest in the Kingdom’s financial markets following the lifting of some restrictions on foreign investors’ activities at the start of the year.
SABIC has also confirmed the appointment of BNP Paribas and Citigroup as global coordinators on the sale, alongside HSBC Bank, Mitsubishi UFG Securities EMEA and Standard Chartered Bank acting as joint lead managers, in its Tadawul note.
The proposed issuance has been well-received so far by analysts with ratings agency Moody’s Investor Service assigning an ‘A1’ rating to the proposed senior unsecured notes to be issued by the financial vehicle, referred to as SABIC Capital II, and guaranteed by SABIC itself.
“SABIC’s A1 rating reflects its strong business position in the chemical sector and its ability to weather industry volatility, particularly given its healthy operational cash flows and conservative liquidity profile,” said Rehan Akbar, a senior analyst at Moody’s, in a note on Monday.
The bond is anticipated to be used in part to refinance an existing SR11.3 billion ($3 billion) one-year bridge loan raised in January this year to fund the company’s 24.99 percent stake in the Swiss chemical company Clariant, according to the Moody’s note. All regulatory requirements were completed on this acquisition earlier this month.
Cash proceeds from the bond may also be used to repay a $1 billion bond due on Oct. 3, according to Moody’s.
On Tuesday SABIC confirmed that the bond will be used mainly to refinance “outstanding financial obligations” of the company and its subsidiaries.
Analysts at rating agency S&P Global were also upbeat about SABIC’s outlook, with research published on Monday stating that the company has “strong profitability” via its KSA operations and a “strong” liquidity position.
“The debt issuance is helpful for the credit profile in the sense that it extends the company’s debt maturity profile and strengthens its liquidity position,” said Tommy Trask, corporate and infrastructure credit analyst at S&P Global.
The agency currently assigns the petrochemical firm an ‘A Minus’ rating, with a “stable outlook,” which it said reflects its “view on the sovereign as well as its expectations that SABIC will maintain high profitability under current benign industry conditions.”
S&P Global’s report said margins in the global chemical industry will “largely stabilize in 2018 following several years of improvement, attributable to the increase in commodity chemical capacity.”
However, it also warned that a key risk to credit quality is
the trend for mergers and acquisitions within the sector and the “potential negative impact on credit metrics from funding them with debt.”