Fitch rates Sabic and Sabic Capital I B.V.'s guaranteed bonds senior unsecured 'A+'

At the same time, Fitch has assigned Sabic Capital I B.V.'s (Sabic Capital) EUR750m 4.5% guaranteed bonds due 2013 a senior unsecured 'A+' rating. The Long-term Issuer Default Rating (IDR) of Sabic has been affirmed at 'A+' with Stable Outlook, while the Short-term IDR has been affirmed at 'F1'.

The bonds were issued in exchange for Sabic Europe B.V.'s EUR750m 4.5% bonds due 2013 (rating withdrawn on 23 December 2008) on a par-for-par basis following an offer launched on 28 November 2008. Full settlement occurred on 19 December 2008. The bonds constitute direct, unconditional and senior unsecured obligations of Sabic Capital I B.V. (as issuer) and of Sabic (as guarantor). Other than a negative pledge, the bonds have no specific covenants.

Sabic Capital I B.V. is a private company with limited liability, incorporated under the laws of the Netherlands on 3 September 2008. The company is a 100%-owned subsidiary of Sabic and was set up to act as finance and investment vehicle for part of the Sabic group, in line with the group's stated aim to centralise its funding activities. The subsidiary is responsible for the financing and tax operations of Sabic's investments in Europe and the USA, following the acquisition of DSM Petrochemicals, GE Plastics, and other entities.

The ratings for Sabic reflect its strong business position as one of the world's largest petrochemicals companies and its access to competitively-priced natural gas feedstock, which results in above-industry average profitability (38.2% EBITDAR margin in FY07) and cash generation (cash from operations in excess of $12bn). The Stable Outlook reflects Fitch's expectation that Sabic will remain committed to its modest financial policy and that, based on its cost-competitive advantage, it will continue to exhibit credit metrics commensurate with the current ratings through the cycle.

In addition, the ratings reflect Sabic's relationship with its 70% shareholder, the Kingdom of Saudi Arabia ('AA-' (AA minus)/Outlook Stable), and assumed government support for Sabic, in line with the approach as laid out in Fitch's parent and subsidiary rating linkage criteria. Fitch recognises the government's strong influence over Sabic, as the government controls five out of seven seats on the company's board. Fitch notes Sabic's strategic importance to the country in the government's efforts to leverage the value of the Kingdom's immense oil and gas feedstock reserves and to diversify the economy away from its strong focus on oil extraction to downstream activities such as petrochemicals. In addition, Sabic is a major employer in the Kingdom, providing an already large, and growing, number of jobs. These considerations are factored into the ratings and are reflected in a single-notch uplift on Sabic's ratings.

The ratings are constrained by the high capital intensity and cyclical nature of the petrochemicals industry, where Sabic continues to derive the majority of its revenues from. In recent years Sabic has broadened its geographical reach and customer base with the acquisition of assets in Europe and the US and, recently, with a large-scale JV in Asia. It has also made progress in its efforts to diversify its product portfolio to increase the portion of revenues from specialty chemicals. The ratings also reflect the remaining execution risks of Sabic's sizeable $21bn investment programme up to 2009/2010. Sabic has undertaken this programme to achieve its ambitious growth targets, including an increase of production to 80 million metric tons (mmt) by 2012 from 55 mmt in FY07. At 9mFY08, Sabic's financial debt net of cash stood at SR43.3bn while Fitch calculates LTM EBITDA at SR57.3bn.