State controlled petrochemical giant Saudi Basic Industries Corp (SABIC) is opting for its first private bond placement to raise $2.67 billion, boosting its finances and funding expansion plans.
Facing a regional investor climate tinged with uncertainty due to Dubai's debt crisis, the firm said on Tuesday it signed an agreement with the Public Investment Fund (PIF), the finance ministry's investment arm and its biggest shareholder over the planned issues.
PIF holds a 70 percent stake in the world's biggest petrochemicals firm by market value and the remainder is held by private investors.
Proceeds from the bonds, which will carry maturities of seven years, will help "raise financing performance, boost competitiveness and contribute to achieve the company's expansion strategy," SABIC said in a statement on the Saudi bourse website.
Chief Financial Officer Mutlaq al Morished said the first issue would take place this month, declining to disclose more details.
SABIC raised $4 billion from the public through three Islamic bond issues over 2006 to 2008.Morished declined to explain the shift to a private placement to raise the cash.
He said: "We don't have any problem with the banks, we are just diversifying the way we finance ourselves."
A source familiar with SABIC's previous bond issues said a need for cash and prevailing market conditions could have forced it to go for a private placement.
The source said:"This deal with PIF appears to have a lot more to do with SABIC's urgent need for cash than it has to do with market conditions. Still, it would not have been wise for them to go public on a bond or sukuk (Islamic) issue at this time."
SABIC's previous sukuk issues attracted investors mainly from the region.
He added:"Investors are still cautious, not as much as they were six months ago but the Dubai problems have made them particularly sceptical towards bond issues."
The company is involved in important expansion plans especially in China and Saudi Arabia. It expects to start production at a plant with China's Sinopec, whose cost rose from an initial $1.7 billion to $3 billion, by the end of this year.
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