DUBAI (S&P Global Ratings): S&P Global Ratings sees Saudi Aramco's acquisition of a majority stake in Saudi Basic Industries Corp. (SABIC; A-/Stable/A-2), the world's fourth largest chemicals company, as a strategic move by Saudi Aramco to expand its downstream operations. We believe the deal will help add value to the crude oil it produces and expand its petrochemicals business, where demand is increasing faster than for crude oil. Moreover, we consider that the transaction reinforces SABIC's role in the Saudi Arabian government's efforts to diversify the economy.
Hence it doesn't affect our ratings or outlook on SABIC. Saudi Aramco, the national oil company, announced yesterday that it has acquired a 70% stake in SABIC from the Public Investment Fund (PIF) of Saudi Arabia for Saudi Arabian riyal (SAR) 259.1 billion ($69.1 billion). The transaction remains subject to certain closing conditions. The sale should also facilitate strategic investments by PIF, which is a core vehicle for the government's broader economic diversification plan.
Our sovereign ratings on Saudi Arabia (A-/Stable/A-2) currently constrains the ratings on SABIC, since we do not rate companies with a very strong link to the government higher than the government itself (see "Credit FAQ: When GREs Raise Debt, What Are The Implications For Sovereign Ratings?," published Nov. 19, 2018, on RatingsDirect). This is because the government controls SABIC's operating strategy and financial policy.
The way in which the transaction between the two shareholders is settled and financed could have a negative impact on SABIC's stand-alone credit profile (SACP) in the future, if its financial policy becomes more aggressive under the new ownership structure. There is currently room under the rating for higher leverage however, given that the SACP of 'a+' is two notches higher than the rating. Leverage (S&P Global Ratings-adjusted debt to EBITDA) would have to increase to at least 3x, compared with SABIC's 0.7x as of Sept. 30, 2018, to trigger a downgrade. Such a scenario is currently not part of our base case.
© Press Release 2019Disclaimer: The contents of this press release was provided from an external third party provider. This website is not responsible for, and does not control, such external content. This content is provided on an “as is” and “as available” basis and has not been edited in any way. Neither this website nor our affiliates guarantee the accuracy of or endorse the views or opinions expressed in this press release.
The press release is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Neither this website nor our affiliates shall be liable for any errors or inaccuracies in the content, or for any actions taken by you in reliance thereon. You expressly agree that your use of the information within this article is at your sole risk.
To the fullest extent permitted by applicable law, this website, its parent company, its subsidiaries, its affiliates and the respective shareholders, directors, officers, employees, agents, advertisers, content providers and licensors will not be liable (jointly or severally) to you for any direct, indirect, consequential, special, incidental, punitive or exemplary damages, including without limitation, lost profits, lost savings and lost revenues, whether in negligence, tort, contract or any other theory of liability, even if the parties have been advised of the possibility or could have foreseen any such damages.
