Saudi Basic Industries Corp (Sabic) faces heavy pressure on its profits due to cheap oil but will keep investing globally to boost capacity in key areas, its acting chief executive said yesterday after the company reported a 39% plunge in first-quarter profit.
Sabic, one of the world’s largest petrochemicals groups and Saudi Arabia’s biggest listed firm, said net profit sank to 3.93bn riyals ($1.05bn) in the three months to March 31 from 6.44bn riyals a year earlier.
Its sales values were slashed by the plunge of oil prices, which has dragged down petrochemical product prices. Revenues in the first quarter shrank 28% from a year earlier and 18% from the previous quarter to 35.56bn riyals.
Yousef Abdullah al-Benyan, who took over from longtime CEO Mohamed al-Mady in February, said the fall in oil and petrochemical product prices was “out of control”, and that his company was continuing to look at its cost base with a view towards postponing non-vital spending.
But he also insisted Sabic would not cut back investments in strategic projects around the world, because it was looking ahead to an eventual upturn. He said areas of opportunity were chemicals in China, shale gas in North America, economic growth in Africa, and gross domestic product growth of about 4% expected in Saudi Arabia this year.
“We always don’t change the key strategic projects, because we understand this is a cyclical market. We understand this is not going to stay forever, and we do not want to be left behind when the market bounces - we want to be the first player ready to enjoy the upcycle.”
Sabic’s first-quarter profit was actually higher than the average forecast of analysts polled by Reuters, who had predicted 3.50bn riyals.
The company’s shares soared their 10% daily limit yesterday after the stock market regulator announced that it would open the bourse to direct foreign investment from June 15. As a top blue chip, Sabic is expected to attract a substantial chunk of the new foreign money.
Saudi Arabia, its state budget hit by low oil prices, has pushed ahead with some economic reforms since King Salman took the throne in January. Some officials have suggested raising subsidised energy prices; a hike in ultra-low domestic prices of natural gas may also become possible at some stage.
Such reforms, if they went ahead, would probably hurt Sabic’s bottom line. But Benyan said he did not expect any policy change that would hurt the petrochemical industry, which authorities had always supported.
“I am pretty sure and confident that the government of Saudi Arabia will continue to provide the policy and regulations that will support this direction,” he said. “It may have a different flavour, a different tweak, but I am confident it will remain with the same spirit. I don’t see any changes at this point.”
Benyan said the company had no plans at present to tap the debt market, and was not planning to refinance a $1bn loan maturing in June.
The company is not in the business of hedging currencies and that is not on its radar, but it does its best to maintain cash to meet its needs in Europe and minimise its exposure to swings in the euro exchange rate, he said in answer to a question about the impact of the euro’s weakness.
