SABIC Capital To Embark On Eurobond Road Show

SABIC Capital To Embark On Eurobond Road Show

Saudi Basic Industries Corporation (SABIC) affiliate SABIC Capital is planning to launch a Eurobond if market conditions are favorable. The company planned to embark on a road show on 20 May in London, then moving to the Gulf and Far East to introduce the bond to potential investors. The dollar-denominated Eurobond, carrying a five-year tenor, is not being filed under 144a regulations, so a non-US investor base is being targeted, MEES learns. SABIC Capital was set up in 2008 in the Netherlands to finance SABIC’s investments in Europe and the US following the acquisition of DSM Petrochemicals and leveraged buyout of GE Plastics, which later became SABIC Innovative Plastics. SABIC’s Chief Financial Officer Mutlaq al-Murshid said that that the bond would be of benchmark size, so probably larger than $500mn, and would be used for general corporate purposes, according to a Reuters report.

Moody’s Investors Service has assigned a A1 senior unsecured rating to the issue, with the outlook stable, noting that it is part of the company’s strategy to centralize the group’s funding at the parent level and to reduce the complexity of the group’s debt structure. The bonds will be unconditionally and irrevocably guaranteed by SABIC, with proceeds raised to be used for the refinancing of existing group debt, particularly SABIC Innovative Plastics. Standard & Poor’s Ratings Services (S&P) also assigned a favorable rating to the bond issue, at A+, noting that it expects leverage at the subsidiary to continue to decrease, following a $700mn equity injection in April that enabled it to redeem 35% of its $1.5bn notes outstanding.

Fitch assigned the bond a senior unsecured A+ rating. Moody’s said the rating action reflects the strong global position of the SABIC group in petrochemicals and fertilizer markets, as well as its highly competitive position as a result of its access to significantly cost-advantaged feedstock sourced from state-owned oil and gas producer Saudi Aramco, “which help mitigate its exposure to predominantly commodity-like cyclical activities.” This, the agency believes, along with long-term funding from government-related agencies and the completion of major projects including Yansab, Sharq and Saudi Kayan, should provide the group with flexibility and underpin its overall credit profile.

In 2007 debt worth $8.5bn for SABIC’s $11.6bn buyout of GE Plastics was underwritten by book runners Citibank, ABN Amro, HSBC, GE Capital and JP Morgan Chase (MEES, 28 May 2007). The debt was then placed with bond investors and banks, despite the turbulence triggered by the US subprime mortgage crisis, in time for the 31 August completion of SABIC’s acquisition (MEES, 10 September 2007). The debt was split into a $1.5bn bond issue, with the remaining $7bn going to banks. At the time, bank appetite for the debt was strong, which was reflected in the pricing, and the bond/bank split was altered in favor of banks, with the bond downsized by dropping a €590mn euro tranche (MEES, 17 September 2007). The bond paid a fixed rate coupon of 950 bps. Meanwhile, the bank debt was split into term loan A with a 125 bps margin and term loan B with a 250 bps margin.

SABIC also issued SR8bn ($2.1bn) worth of Sukuk (an Islamic product similar to a bond) in 2007, securing margins of 38 bps over the Saudi interbank offered rate (SIBOR) versus the 40 bps seen on its inaugural SR3bn Sukuk issued in 2006 (MEES, 13 August 2007).  SABIC made its third Sukuk offering in 2008 (MEES, 12 May) and all are traded on the Tadawul. Saudi Electricity Company (SEC) was the most recent Sukuk issuer in the Kingdom and it completed its third issue this month (MEES, 17 May).

Copyright MEES 2010.