Fitch affirms SABIC at 'A+', keeps stable outlook

Ratings reflect SABIC's strong business position as a leading petchem co - ratings agency.
Fitch affirms SABIC at 'A+', keeps stable outlook
By Neeraj Gangal
Fri 18 Dec 2009 03:56 PM

Fitch Ratings on Friday affirmed Saudi Basic Industries Corporation's ratings (SABIC) at Long-term Issuer Default (IDR) 'A+', senior unsecured 'A+' and Short-term IDR 'F1'.

The outlook on the Long-term IDR is stable, the ratings agency added.

“The ratings reflect SABIC's strong business position as one of the world's largest petrochemicals companies, and its state-of-the-art world-scale production facilities with close proximity to growing Asian markets. SABIC benefits from access to competitively-priced natural gas feedstock, which results in higher- than-average profitability (31.5% EBITDAR margin in FY08) and cash-generation (cash from operations in excess of USD11bn),” Fitch noted.

“This helped mitigate the increase in financial leverage, mainly stemming from lower petrochemical product prices during the 2008/2009 recession, and continued high cash outflows related to expansion projects.”

The stable outlook reflects Fitch's expectation that SABIC will remain committed to its modest financial policy, the agency added.

The ratings reflect SABIC's relationship with its 70% shareholder, the Kingdom of Saudi Arabia, and assumed government support for SABIC.

“Fitch recognises the government's strong influence on SABIC, as reflected in its representation in five-out-of-seven members on the company's board. Fitch notes SABIC's strategic importance to the country. In addition, SABIC is a major employer in the Kingdom. These considerations are factored into the ratings and enhance SABIC's rating by one notch,” the ratings agency said.

“Fitch also notes that SABIC's rating incorporates benefits from its relationship with the government, such as funding from government-related organisations (10% of SABIC's financing as of end-FY08), which also participate in expansion project financing.”

The ratings are constrained by the high capital intensity and cyclical nature of the petrochemicals industry, from which SABIC continues to derive the majority (84%) of its revenues, Fitch noted.

“In recent years SABIC has broadened its geographical reach and customer base with the acquisition of assets in Europe and the US and, with a large-scale JV in Asia. It has also made progress in its efforts to diversify its product portfolio to increase the portion of revenues from higher value-added specialty chemicals.”

SABIC is one of the world's leading chemicals producers and the largest non-oil company in the Middle East.

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