With the construction boom at home and a growing market for petrochemicals abroad, Saudi Basic Industries Corp. (SABIC) has gone into expansion mode in order to cope with escalating demands. It has allocated more than SR30 billion for current and planned investments in various projects. It is also going ahead with plans for joint ventures and acquisitions to face the challenges looming ahead. In the process, SABIC has acquired international stature as it scouts for markets overseas to leverage its strength amid stiff competition.
According to SABIC’s annual report, it anticipates additional worldwide investments and an increase in annual production to more than 60 million tons by 2008. Already, its sizable investments have enabled it to rank as one of the world’s largest exporters of granular urea; second largest producer of ethylene glycol, methanol and MTBE; third largest producer of polyethylene; fourth largest producer of polypropylene; and overall the fourth largest producer of polymers. It ranks as the 13th largest company in the world in terms of market capitalization, according to a study conducted by Bloomberg.
According to Prince Saud ibn Thunayyan Al-Saud, chairman of the SABIC board of directors and chairman of the Royal Commission for Jubail and Yanbu, “today, more than 80 percent of petrochemical exports from the Arabian Gulf region are produced and shipped by SABIC. Our potential for growth has never been greater as we focus on expansion of the company’s activities in the Americas, Europe, Asia and the Middle East.”
SABIC has come a long way since its creation in 1976 to diversify and consolidate Saudi Arabia’s nonoil business. The company has faced many challenges but is now a key contributor to the Saudi economy. “SABIC is part of a rapidly diversifying Saudi economy and plays a prominent role in the country’s continuing industrialization. SABIC products have created numerous downstream businesses in Saudi Arabia and tens of thousands of new jobs for Saudi citizens,” Prince Saud said.
SABIC expects to see a sustained increase in demand for its petrochemical products in all major regions. Global demand for polyolefins is expected to increase annually by seven percent between now and 2008.
Besides undertaking expansion programs, SABIC and ExxonMobil Chemical announced that they had embarked on a feasibility study in order to set up their two joint petrochemical ventures at Yanbu and Jubail. The project will target a domestic supply of carbon black and rubber and thermoplastic specialty polymers and serve emerging local and international markets. The expected project start-up is 2011.At the international level, SABIC has announced that it intends to form a joint venture in China with possible investment of up to $5 billion. The company is keen on building a manufacturing base in China, a market where it has been selling products for the past 28 years, said Mutlaq H. Al-Morished, chief financial officer of the company. He unveiled plans that envisage “looking at building facilities in China when the time is right.”
In order to expand its investment portfolio, SABIC officials visited various Asian countries where they made presentations targeting potential investors for a benchmark-sized euro bond issue. Benchmark-sized euro bonds usually total at least 500 million euros ($636 million). In the Netherlands, SABIC Europe held road shows this month for selling the bond whose tenor will be between seven and 10 years. HSBC and JP Morgan Securities are joint bookrunners for the deal. The proceeds will be used for general corporate purposes, including SABIC’s recent acquisition of Huntsman Petrochemicals (UK) Ltd.
In September, SABIC agreed to buy the European bulk chemicals unit of US-based Huntsman Corporation for $700 million, saying the assets fit well with its other European operations and would allow it to gain scale on the continent.
Even as SABIC expands in the domestic and international markets, it has to confront challenges stemming from its accession to the WTO. As its chairman, Prince Saud ibn Thunayyan, observes: “SABIC will face many challenges on its way to success. By overcoming them, the company will continue to play a key role in the nation’s economy. In the light of the fluctuating global conditions and changing economic conditions, there is a wave of change in the liberalized world. Companies also face stiff competition from mergers and acquisitions and the impact following new members joining the World Trade Organization.” The best way to overcome these challenges, according to the prince, is to adopt rational scientific procedures and work out innovative and creative solutions. The company has confronted these challenges by investing in its R&D facilities. The globalization of SABIC R&D has generated numerous international patents for the company.
The company has led the invention of several important process technologies and catalyst-related technologies and products. “I expect that SABIC will become the world’s largest producer of ethylene glycol by 2006 with the acquisition of Scientific Design with a 50:50 partnership with Sud-Chemie of Germany, a world leader in ethylene glycol,” he said.
The company has also undertaken cost-cutting measures, besides initiating other moves to add value to the quality of its products and services and enhance its competitiveness. This will ensure long-term mutual relations with local and overseas customers.
Another significant step taken by SABIC has been to maintain a high level of productivity. For example, SABIC affiliates have achieved 93 million man-hours without any lost-time injury. These manifold measures are expected to go a long way in sustaining the momentum of SABIC’s growth and development as a petrochemical giant on the world stage.
