Bloomberg News

Sabic Posts Record Quarterly Revenue as Exports, Oil Rise

July 17, 2011

(Updates with CEO’s comments on loans in 13th paragraph.)

July 17 (Bloomberg) -- Saudi Basic Industries Corp., the world’s largest petrochemicals company, reported record revenue in the second quarter as exports rose and crude oil traded at a two-year high amid rising demand from Asia.

Saudi Basic, majority owned by the kingdom’s government, had a revenue of 49 billion riyals ($13 billion) in the quarter, Chief Financial Officer Mutlaq Al-Morished told reporters in Riyadh today. The median estimate of three analysts was for a revenue of 46.3 billion riyals, according to data compiled by Bloomberg.

Saudi petrochemical companies have started to recover from the global financial crisis as oil prices surged and demand from fast-growing Asian economies including China and India increased. Saudi Arabia’s annual petrochemicals exports climbed 39 percent to 4.8 billion riyals in May, according to data posted on the Saudi Ports Authority website.

Saudi Basic, also known as Sabic, said yesterday second- quarter profit jumped 61 percent to 8.1 billion riyals as production, sales volumes and prices increased. The median estimate of four analysts was for 7.72 billion riyals, according to data compiled by Bloomberg. Revenue was 38.86 billion riyals in the second quarter of last year and 44.87 billion riyals in the first quarter of 2011.

The company’s revenue was unaffected by the financial conditions in the U.S. and the earthquakes in Japan, Chief Executive Officer Mohamed Al-Mady said today. “Inventory levels are still good so we don’t have any reason to believe that the demand will be sluggish,” he said.

‘Peaked’

“Earnings may have peaked in the second-quarter of 2011 and we expect relatively weaker performance in the second half, as the slowdown in China’s demand weigh on global chemicals prices,” Ahmed Shams El Din, director of equity research at EFG-Hermes Holding SAE, said today. He has a “buy” rating on the stock with a price estimate of 133 riyals.

The shares closed unchanged at 104 riyals in Riyadh today after gaining 1.4 percent. The stock has dropped 0.7 percent this year compared with a 2.4 percent decline in the benchmark Tadawul All Share Index. BASF SE, the world’s largest chemical company, increased 14 percent in the same period.

The current range of oil prices is good for Sabic and the company’s preferred crude price is about $100 a barrel, Al-Mady said. Oil prices averaged $102.41 a barrel in the second quarter and closed at $97.24 on July 15. Saudi Arabia is the world’s biggest exporter of crude oil.

“You can’t take things in absolute terms; you have to see also the currency you go with and what the dollar situation is at the time,” said Al Mady. “Maybe $100 is good today because the dollar is appreciating.”

Acquisitions

Sabic wants to grow by adding capabilities in specialty chemicals organically and through acquisitions, CFO Morished said when asked about the company’s future strategy. He didn’t provide further details on acquisitions.

The company’s last acquisition was in 2007 when it bought General Electric Co.’s plastics unit, now Sabic Innovative Plastics, for $11.6 billion. Since then, Sabic has been active in joint ventures with companies including China Petroleum & Chemical Corp., Asia’s largest oil refiner known as Sinopec.

Sabic and other Middle East chemicals makers are “in the best strategic position since the industry was established” due to high sales prices and low feedstock costs, Nomura Holdings Inc. said in June. The petrochemical producers can “cherry pick” acquisitions internationally or choose projects within the region, Nomura said.

Refinancing

Sabic is refinancing some of its loans with cheaper rates and the company is under no pressure to tap the debt market to finance its expansion plans, Al-Mady said. The company raised $1 billion from selling bonds in October.

The company plans to build two petrochemicals plants in the Jubail Industrial City in Saudi Arabia along with Mitsubishi Rayon Co., and a polycarbonate facility in Tianjin, China with China Petroleum & Chemical Corp.

“Once we award these contracts, we will go to banks for loans or sukuk or whatever is cheaper for us,” Al-Mady said.

--Editors: Shaji Mathew, Shanthy Nambiar

To contact the reporters on this story: Mourad Haroutunian in Riyadh at mharoutunian@bloomberg.net; Tamara Walid in Dubai at twalid@bloomberg.net

To contact the editor responsible for this story: Shaji Mathew at shajimathew@bloomberg.net


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