Rating agency S&P Global believes the January 1 price hike by Saudi Aramco, the Kingdom’s national oil and gas company, for its feedstock and fuel prices, will not make a major impact on its rated companies in the country like Saudi Basic Industries Corporation (SABIC), Almarai, and Saudi Electric Company.
On January 1, 2025, Saudi Aramco increased diesel prices in the country to SR1.66 ($0.44) per litre, a 44.3 per cent rise. Petrol prices were kept unchanged – Gasoline 91 at SR2.18 ($0.58) per litre and Gasoline 93 at SR2.33 ($0.62) per litre. The last price rise was on January 1, 2024.
In a report released on Thursday, S&P Global said: “The rise in fuel prices will lead to a marginal increase in production costs for rated Saudi corporates. However, it could significantly affect wider Saudi corporations’ profit margins and competitiveness.”
S&P Global Ratings believes SABIC, Almarai, and SEC can manage the higher costs, with no meaningful impact on credit quality. It expected that these companies can mitigate marginally higher production costs by enhancing operational efficiencies and potentially via pass-through mechanisms. The additional cost will be reflected in companies’ financials from the first quarter of 2025.
The increase in feedstock prices will not affect profitability significantly for SABIC and Almarai. As for utility company SEC, additional support will likely come from the government if needed.
On SABIC (rated A with positive outlook), S&P Global said a healthy balance sheet and advantageous cost position will continue to underpin its rating. SABIC sources more than half of the feedstock used in the country at favourable costs from its 70 per cent shareholder Saudi Aramco and S&P expected it to continue to outperform global peers on profitability.
“We don’t expect the rise in feedstock and fuel prices to materially affect profitability, since the company estimates it will increase its cost of sales by only 0.2 per cent. We expect S&P Global Ratings-adjusted EBITDA margins to average 15 per cent-18 per cent in 2024-2025, following 14.9 per cent in 2023. Negative free operating cash flow (FOCF) will increase the group’s gross reported debt from Saudi Arabian riyal (SAR) 29.4 billion as of third-quarter 2024, but leverage should stay comfortably below our 2.0x threshold for the rating,” the report said.
“We view SABIC as a government-related entity (GRE) with a high likelihood of receiving extraordinary support in the event of stress. SABIC plays an important role in Saudi Arabia’s Vision 2030 strategy and is a significant employer, with Saudi nationals making up about 90 per cent of its local workforce.”
Almarai (BBB-/positive) estimates additional costs of SAR200 million ($53.3 million) for 2025 due to the higher fuel price, in addition to indirect impacts from other parts of its supply chain, but S&P Global believes the company will continue focusing on business efficiency, cost optimisation, and other initiatives to mitigate these impacts. The company’s revenue and profitability growth will continue as inflation eases.
On Saudi Electric (A/Positive), S&P Global is certain that the Saudi Arabian government would provide timely and sufficient extraordinary support to SEC in the event of financial distress.
“We equalise our rating on the company with that on the sovereign. An unrestricted and uncapped balancing account provides a mechanism for government support, including related to the higher fuel costs. We believe any increased fuel cost will be covered by this balancing account,” the report added.
The report added: “Saudi Arabia is continuing its significant and rapid transformation under the country’s Vision 2030 program. We expect an acceleration of investments to diversify the Saudi economy away from its reliance on the upstream hydrocarbon sector.
“The sheer scale of projects–estimated at more than $1 trillion in total–suggests large funding requirements. Higher feedstock and fuel prices would help reduce subsidy costs for the government, with those savings potentially redeployed to Vision 2030 projects.”
Despite the hike, diesel prices in Saudi Arabia are lower than neighbouring countries like the UAE ($0.73) and Qatar ($0.56).
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