Sabic rating unlikely to be affected after attacks, S&P says
Saudi Basic Industries Corporation's credit rating is unlikely to be affected by the attacks that halved Saudi Arabia's oil production, curtailing feedstock supplies to the biggest petrochemicals producer in the Middle East, S&P Global Ratings said.
The rating agency is evaluating the impact on Sabic following the major feedstock cuts in the aftermath of strikes on Saudi Aramco's Abqaiq oil stabilisation facility and the Khurais oilfield on Saturday. This is the sixth reported attack on Saudi oil interests and facilities over the past four months, but the first one to affect Sabic, which S&P rates A-/Stable/A-2.
“We don't expect the incident to affect our ratings on Sabic, given the company's strong liquidity and low leverage,” S&P said. “We have a stand-alone credit profile [SACP] on the company at A+, two notches above the A- long-term issuer credit rating, which the sovereign credit rating currently caps.”
The attacks hit at the heart of Saudi Arabia's energy centre in the Eastern Province targeting the 7-million-bpd capacity oil stabilisation plant, the largest in the world, where volatile hydrogen sulfide is processed into "sweet" crude that is safer to transport. The plant processes an equivalent of 7 per cent of total global crude output.
The Khurais field, about 200 kilometres south-west, had a production capacity of 1.2 million bpd until it was attacked. The attacks also took half of the kingdom's gas production offline.
On Sunday, Sabic, along with some of the other major petrochemicals producers in the kingdom, reported a disruption to about half of some the key feedstock supplies.
“We understand gas supplies to power plants have continued, with petrochemical producers bearing the brunt of the cuts,” S&P said. “The impact on Sabic will depend largely on how quickly supplies can be restored.”
On Tuesday Saudi Arabia, Opec’s biggest oil exporter, said its output capacity will go back to reach 11 million barrels per day by the end of September. The kingdom has already returned 41 per cent of supply lost since Saturday, the kingdom’s Energy Minister Prince Abdulaziz bin Salman said in Jeddah.
Sabic on Wednesday reported an improvement in the supplies from Saudi Aramco, saying curtailment of feedstock has come down from 49 per cent to 30 per cent. Supply is expected to normalise fully by the end of September as indicated by the kingdom’s energy ministry, the company said in a statement to Tadawul stock exchange.
The attacks, however demonstrates Saudi infrastructure's vulnerability and could lead S&P to reassess the SACP on Sabic if supply is not restored quickly but it is “unlikely to result in a rating change”, it said.
“The sovereign's credit quality caps the rating on the company because the government controls Sabic’s operating strategy and financial policy. Therefore, a change in the sovereign rating would very likely result in a similar change to the ratings on the company,” S&P added.
Updated: September 18, 2019 12:02 PM