Safco's dividend to help parent SABIC's Q1 net

SABIC will be able to add $200.2m to its Q1 earnings after Safco dividend.
Safco's dividend to help parent SABIC's Q1 net
DIVIDEND OFFER: Safco will offer a second half dividend to its parent company, SABIC, which will add $200m to its first quarter earnings. (Getty Images)
By Souhail Karam
Sun 21 Feb 2010 10:16 PM

Saudi Arabian Fertilizers Co (Safco) will offer a second half dividend, which will add $200 million to the first quarter earnings of its parent company Saudi Basic Industries Corp's (SABIC).

A dividend of a $1.87 for the second half of 2009 will be paid in March, Safco said in a statement issued on Sunday. It brings its annual dividend to $3.2 compared with $3.46 riyals last year.

SABIC will be able to add $200.2 millions to its first quarter earnings, which is equivalent to more than 75 percent of the $259.7 million net loss SABIC had in the first quarter of 2009.

Laurent Patrick Gally of Dubai based Shuaa Capital said: "Safco is doing this because SABIC is its best friend and Safco can generate the cash. Its net cash position at the end of 2009 stood at $640 million, so they can easily pay the $466.7 million product of this (second-half) dividend."

Safco's latest dividend is more than twice its earnings per share for the second half and the $800 million dividend payout for 2009 exceeds by almost 67 percent its net profit, which fell 58 percent from the previous year.

Gally said: "Safco is also telling us that 'I can afford to please SABIC and other shareholders' after price levels of urea and ammonia reached very good (levels). They (Safco) are very much positive about the outlook."

Safco's net profit will rise by at least 15 percent in 2010 to $565.3 million if prices of urea and ammonia remain above $300 per tonne, Gally said.

However, analysts said the dividend raises questions about Safco's earnings growth potential as it may cause a delay to a fifth production line that would increase its urea and ammonia production capacity by almost 50 percent.

Safco was planning to launch an Engineering Procurement-Construction (EPC) tender for a fifth line during the first quarter. The project is expected to cost at least $533.3 million.

Hesham Abu Jamea, head of asset management at Bakheet Investment Group, said: "A company that gives a big dividend generally means it has no expansion plans."

He added: "Why would Safco take out $800 million in cash to give it to shareholders and then seek ... (money) from lenders to help fund expansion? It would amount to pure financial inefficiency."

Shuaa's Gally said that any delay in the project "simply limits earnings growth potential for the company".

Safco Chairman Mohamed Al Mady, who is also SABIC's chief executive, said he could not immediately comment.

Safco shares closed 2.9 percent higher while SABIC shares closed 0.3 percent down.

State controlled SABIC also holds 30 percent of a $5.6 billion joint venture with state controlled Maaden that will export Diammonium Phosphate and ammonia fertilizer products towards the end of this year. (Reuters)

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