Saudi Basic Industries Corp. 'A+/A-1' ratings affirmed on plan to buy GE Plastics; Otlk Stbl

This follows the company's announcement that it will acquire the plastics business of U.S.-based General Electric Co. (AAA/Stable/A-1+) for a total consideration of $11.6 billion. The outlook is stable.

"Although SABIC's investments will clearly exceed operating cash flow generation in 2007 and 2008 and the company is expected to build up meaningful financial debt with the acquisition of GE Plastics, cash flow protection ratios are expected to remain adequate for the assigned ratings," said Standard & Poor's credit analyst Tobias Mock.

The addition of GE Plastics will improve SABIC's regional and product diversification. It will also somewhat decrease the overall cyclicality of the company's portfolio, as specialty plastics have different business characteristics from SABIC's basic chemicals operations. GE plastics had sales of $6.6 billion in 2006.

The ratings on SABIC reflect its leading market positions in basic and commodity chemicals as the world's third-largest producer of ethylene and polymers and the Gulf region's largest steel producer with a current capacity in excess of five million metric tons (mmt). SABIC had sales of Saudi Arabian riyal (SAR) 86.3 billion ($23 billion) for the 12 months ended Dec. 31, 2006.

SABIC is 70% owned by the Kingdom Of Saudi Arabia (A+/Stable/A-1) and a part of the company's current funding needs are provided by state-owned investment funds. The company is of key strategic importance to Saudi Arabia, which Standard & Poor's recognizes with a one-notch uplift to the stand-alone rating on SABIC.

The ratings are constrained by the cyclicality and high capital intensity of SABIC's petrochemicals and steel production business units, improving but still lower diversification in terms of sales and geographic concentration of plants compared with its large international competitors, and the risk posed by the significant investment program planned over the next few years.

"The stable outlook reflects Standard & Poor's expectation that SABIC will remain committed to a moderate financial policy and refrain from further large debt-financed acquisitions, as its business remains cyclical and cash flow protection ratios are expected to maintain adequate levels for the rating in a likely downturn at the end of the decade," said Mr. Mock.