Moody's affirms Sabic A1 rating
London, November 28, 2009
Moody's has affirmed the A1 senior unsecured ratings of Saudi Basic Industries Corporation (Sabic) and its guaranteed subsidiary Sabic Capital with a positive outlook.
Moody's affirmation of Sabic's A1 ratings reflects the significant credit strength the group continues to derive from the supportive environment it enjoys in Saudi Arabia given its 70 per cent government ownership and the instrumental role it plays in supporting the diversification of the country's economy and job creation through the development of export-oriented non-oil businesses.
On a more cautious notes, Moody's also observes that despite the strong competitive position of its Saudi-based petrochemical operations underpinned by their access to cost advantaged feedstock and proximity to the high growth markets of Asia, Sabic's profitability has been significantly affected by the severe cyclical downturn experienced by the global chemical industry in the past twelve months, which has, in particular, hurt the results of its foreign affiliates, Sabic Innovative Plastics (SIP) and Sabic Europe.
Looking ahead, an improving operating environment combined with the comprehensive restructuring action initiated at SIP and Sabic Europe, should lead to some further rebound in Sabic's operating profitability from the lows of late 2008/early 2009, as recently evidenced by the sequential improvement in results reported in the second and third quarter of 2009. However, Moody's believes that the recovery may be gradual while the group's cash flow generation continues to be constrained by the ongoing execution of a sizeable investment programme.
Based on the view that Sabic's financial profile and credit metrics are likely to remain more weakly positioned in the intermediate term compared to historical levels and previous expectations (with net debt to Ebitda projected to remain close to 2.0 times in 2009-2010), Moody's considers as warranted to adjust downward the group's baseline credit assessment(BCA) to 6 (equivalent to an A2 rating on a scale of 1-21) from 5, while keeping its assumptions of high state support and dependence unchanged under the rating methodology for government-related issuers (GRIs) applied to Sabic.
However, Moody's continues to take significant comfort from the strong global positioning of Sabic within the petrochemicals and fertiliser markets and its highly competitive cost position.
While a constraint on its cash flow generation and credit metrics in the near term, the completion of major projects such as Yansab, Sharq and Saudi Kayan should enhance Sabic's ability to capitalise on current trends in global chemical consumption and boost its earnings and cash generating capacity going forward. This together with a continuing access to competitively priced feedstock and long-term funding from government-related agencies for part of the financing of its projects, should help underpin Sabic's financial flexibility and overall credit profile.
Moody's previous rating action on Sabic was the assignment of an A1 senior unsecured rating to the senior unsecured bonds issued by Sabic Capital and guaranteed by Sabic on November 24, 2008.
Headquartered in Riyadh, Saudi Arabia, Sabic is a diversified industrial conglomerate that is 70 per cent-owned by Saudi Arabia and principally active in petrochemicals, fertilisers and metals with consolidated revenues of SR151 billion in 2008.-TradeArabia News Service
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