SABIC posts first-quarter loss, suspends most capex spending as coronavirus bites

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Petrotahlil - Saudi Basic Industries Corp (2010.SE), the world's fourth-biggest petrochemicals company, suffered a second consecutive quarterly loss and said it will suspend all capital expenditures barring those for late-stage projects and necessary operations.

SABIC Chief Executive Officer Yousef al-Benyan warned that the coronavirus outbreak, lower energy prices and weak global economic outlook will impact demand and further put prices under pressure.

This will be reflected "more significantly" in SABIC results in the second quarter and potentially until the end of the year, he said, adding that prices for some products went down as much as 25%.

"This, along with an oversupply in our key products, will put further pressure on product prices and margins," Benyan said in a statement.

SABIC posted a loss of 950 million riyals ($252.93 million) in the quarter that ended March 31, widening from a fourth-quarter loss of 790 million riyals.

The first-quarter figures compared with a net profit of 3.41 billion riyals a year earlier, and was worse than estimates by analysts such as NCB, which had predicted a loss of 143 million riyals.

The loss sent its shares down 1% in early trade.

"We have a 'Sell' rating on SABIC as we believe global chemicals will be in a trough market for the coming two years, however, we acknowledge that the stock has already seen a sizeable correction and valuation is now starting to make more sense," said Yousef Husseini, an analyst at EFG Hermes.

CAPEX CUT

To cope with a drop in global demand, the petrochemical giant expects to reduce its capital expenditure by more than 20% this year by putting on hold some non-priority projects, but will keep spending on some projects in the United States, China and India that are key to its strategic growth, Benyan said.

"SABIC is committed to capital discipline and maintaining a strong balance sheet and has suspended all capex, except for non-discretionary capex for safe and reliable operations and late stage projects," he added.

SABIC took 1.07 billion riyals ($284.80 million) in impairments mainly linked to its move to suspend the production of plastic material ULTEM at its plant in Cartagena, Spain.

Asked about the impact of Saudi Arabia's oil production cuts on supply of feedstock, Benyan said supply of feedstock was at full scale and that SABIC increased its production by 4% in the first quarter.

He also said SABIC did not plan to launch a full takeover of Swiss chemicals company Clariant (CLN.S) despite hiking its stake in the company to 31.5% from 25%.

Benyan told a virtual news briefing that Saudi Aramco (2222.SE), which agreed to acquire SABIC in a $69.1 billion deal last year, has committed to complete the acquisition of a controlling stake in SABIC by the second quarter and he does not see anything that changes this timeline.

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