SABIC and Clariant to deepen alliance as regulators back stake deal

A man walks past the headquarters of Saudi Basic Industries Corp (SABIC) in Riyadh. (Reuters)
Updated 10 September 2018
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SABIC and Clariant to deepen alliance as regulators back stake deal

  • Deal rescues Clariant from hostile takeover
  • SABIC to become biggest shareholder in Swiss firm

ZURICH: Saudi Basic Industries Corp won regulatory approvals on Monday to buy a quarter of Swiss chemicals maker Clariant, cementing a partnership they hope will drive profit.
The world's fourth-largest chemicals maker said in January it was buying a 24.99 percent stake from activist investors, rescuing Clariant from a hostile takeover threat.
However, gaining a regulatory nod from countries including Mexico and Brazil has pushed back closure of SABIC's stock purchase by nine months.
But with this roadblock now cleared, Clariant Chief Executive Hariolf Kottmann plans a strategic update to tell shareholders how the combination will work.
SABIC sees Clariant as a stepping stone to diversifying its portfolio, which relies on commodity chemicals like fertilizers and polymers. Kottmann meanwhile aims to capitalise on opportunities in SABIC's 50-plus country network, to not only boost sales but reap savings on raw materials costs.
When the transaction closes on Thursday, SABIC will become Clariant's biggest shareholder, ahead of a German family group that has held about 14 percent since selling holdings in Bavarian-based Sued-Chemie in 2011.
The size and reach of the Saudis -- SABIC has $40 billion annual sales, six times Clariant's revenue -- could help the Swiss company lower costs for materials for its products, which include fire retardants which are dropped to tackle forest blazes and catalysts to speed up chemical reactions.
"On the sourcing side, Clariant could really benefit," Zuercher Kantonalbank analyst Philipp Gamper said. "With its extensive business connections it will also open up sales opportunities."
Clariant shares were up 1.3 percent at 1100 GMT. They have fallen 12.7 percent this year, as the arrival of SABIC as an anchor shareholder dented hopes of a takeover or break-up.
SABIC shares, which have risen by about 17 percent this year, were down 1 percent.
While SABIC has said it has no plans to buy a majority holding, its deepening union with Clariant has prompted speculation that managers in Riyadh will eventually assert more control. Sources have said no move is imminent, although SABIC is unlikely to just sit on its 25 percent holding.
SABIC has long been a Clariant customer and the two have a plant design joint venture called Scientific Design, which generates shared revenue of about $80 million annually.
Yousef Al-Benyan, SABIC's CEO said the companies knew each other and had worked well together for many years.
"This investment is in line with SABIC’s strategy of product diversification...and becoming a global leader in the specialties sector," he said.


Gulf ratings untarnished by growing GRE debt

Updated 9 min 33 sec ago
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Gulf ratings untarnished by growing GRE debt

  • Head of equity research at Exotix Capital Hasnain Malik: Investors familiar with the Gulf fully expect debt issuance by governments and their related enterprises to increase
  • Hasnain Malik: The generally very strong financial position of sovereigns in the Gulf and their defensible exchange rates has provided a relative haven for global fixed income investors

LONDON: The sovereign ratings of Gulf countries remain unaffected for now by both the recent and planned debt-raising activities of government-related entities, according to S&P Global.
The agency published a research note on Tuesday following investor concerns about the implications of significant amounts of debt being raised by government-backed entities such as investment funds and oil companies.
Saudi Arabia’s Public Investment Fund (PIF) raised an $11 billion international syndicated loan in September this year, while in July, Saudi Aramco said it might consider acquiring a strategic stake in Saudi Basic Industries Corp. (Sabic) from PIF. This potential acquisition is likely to require funding of up to $70 billion, said S&P Global.
“So far, the level of GRE debt and the potential for these contingent liabilities — obligations that have the potential to materialize on a government’s balance sheet or more broadly affect its fiscal profile — being realized has not led to negative rating actions for Gulf Cooperation Council (GCC) sovereigns,” the S&P report said.
“If contingent liabilities do materialize, they have the potential to negatively affect sovereign ratings,” it added, using Mozambique as an example of where the restructuring of a government-guaranteed GRE loan led to a downgrade of the sovereign rating in 2016.
Hasnain Malik, head of equity research at Exotix Capital, said that most investors anticipated the Gulf region would ramp up debt-raising activities in the near future.
“Investors familiar with the Gulf fully expect debt issuance by governments and their related enterprises to increase. This is in line with their stated strategies,” he said.
“The more the debt that is taken on by government-related enterprises, the more that it will be lumped together with debt taken out by the sovereign in order to assess overall risk. But this is nothing new. Past discussions of the overall debt position of ‘Dubai Inc’ or ‘Qatar Inc’ have grappled with the issue of explicit and implicit government guarantees,” he said.
Rating agency Moody’s said last month that the multibillion-dollar PIF loan demonstrated that Saudi Arabia had a “strong ability to raise alternative funding in the capital markets,” according to its Oct. 17 report.
It then warned that a “significant reliance on broader public- sector borrowing to fund the diversification and development agenda would over time increase contingent liability risks for the sovereign.”
Malik said the region had retained its appeal to investors so far despite the potential rising GRE debt.
“In what has been a tougher environment for emerging market debt this year, the generally very strong financial position of sovereigns in the Gulf and their defensible exchange rates has provided a relative haven for global fixed income investors,” he said.
“The imminent inclusion into JP Morgan’s mainstream global indices of debt will likely put the region closer to the center of the average emerging market fixed income investor,” he said.
S&P Global rates 24 GREs in the Gulf region, with most of the companies enjoying the same rating as the sovereign.