Fitch upgrades SABIC to 'A+'; affirms SABIC Europe at 'A'

The Outlook on the Long-term IDR remains Stable. Simultaneously, Fitch has changed subsidiary SABIC Europe B.V.'s ("SABIC Europe") Outlook to Stable from Negative. Its ratings are affirmed at Long-term IDR 'A', Short-term IDR 'F1' and senior unsecured 'A'.

The upgrade of SABIC's ratings reflects a re-examination of SABIC's relation to the Kingdom of Saudi Arabia and assumed government support for SABIC in line with the approach laid out in Fitch's criteria report 'Parent and Subsidiary Rating Linkage; Fitch's Approach to Rating Entities Within a Corporate Group Structure', dated 19 June 2007. Fitch recognises the government's strong influence on SABIC due to its significant 70%-stake in the company; this is also reflected in a five-out-of-seven members representation on the company's board.

At the same time, Fitch notes SABIC's strategic importance for the country in the government's efforts to leverage the value of the Kingdom's immense oil and gas feedstock reserves, to diversify the economy away from the strong focus on oil extraction, while providing an already large, and growing, number of jobs. These considerations are factored into the ratings, acting as a credit enhancement of one notch to SABIC's standalone credit profile.

SABIC's credit profile continues to be strong and is not impaired by the USD11.8bn, mainly debt-funded acquisition of GE's plastics division (now SABIC Innovative Plastics). The purchase represents only a moderate increase of SABIC's overall capital expenditure plan, which totals USD32bn for the period up to 2009/2010. SABIC's credit ratios for 2006 were very strong, with a net debt/EBITDAR of 0.1x and a total adjusted debt/EBITDAR of 1.2x. Cash from operations covered more than 80% of total adjusted debt, while EBITDAR interest cover was in excess of 22x. As of Q2FY07, SABIC had cash and cash-equivalents of SAR51.6bn (USD13.8bn), while debt stood at SAR44.4bn (USD11.8bn).

On a consolidated basis Fitch expects net debt/EBITDAR to peak at 1.2x to 1.5x during the next two to three years, while SABIC will be free cash flows-negative based on its significant capital expenditure programme and the recent acquisition. However, the execution and integration risks and the increase in financial leverage are mitigated by the strong pre-capital expenditure cash generation as well as the solid capital structure, the improved business profile and the increase in geographical diversification.

The review of SABIC's ratings included management meetings with SABIC and SABIC Innovative Plastics and an assessment of SABIC Europe's position within the group. In line with Fitch's 'Parent and Subsidiary Rating Linkage' criteria report, SABIC Europe is viewed as strongly linked to its parent company, which is based - notwithstanding the absence of any legal ties, such as guarantees or cross-default clauses - on robust operational and strategic ties, 100% ownership and demonstrated tangible support, as outlined by Fitch in previous analysis.

SABIC Europe's rating is closely correlated to its parent company's with a one-notch differential. The Stable Outlook on SABIC Europe's rating reflects that on SABIC's rating.


SABIC is the largest non-oil company in the Middle East. The group is organised into eight business divisions: basic chemicals, intermediates, polymers, specialty products, fertilizers, metals, SABIC Europe and SABIC Innovative Plastics. SABIC in FY06 achieved sales of SAR86bn (USD23bn) and generated an EBITDAR of SAR36bn (USD9.6bn), corresponding to a margin of 42%.