Sabic Plans to Improve Operating Efficiencies After Subsidy Cuts

  • Company costs rose 5 percent after government subsidy cuts
  • Sabic looking at expanding business in Asia, Mideast, China

Saudi Basic Industries Corp. plans to improve its operating efficiency as one of the world’s biggest petrochemical makers copes with a reduction in energy subsidies.

The challenge is how “to make our business more efficient,” Chief Financial Officer Mosaed Al Ohali said in an interview in Riyadh on Monday. “It’s not only a game of costs, but also it’s a game of product diversity, it is a game of innovation and market access. We are continuously working on these aspects.”

Sabic’s costs increased about 5 percent after the kingdom reduced power, water and gasoline subsidies this year. The cuts are part of the kingdom’s plan to prevent the budget deficit from widening after a slump in oil prices shrank government revenue. The country’s economic growth will grow 1.5 percent this year, the slowest pace since the global financial crisis, according to a Bloomberg survey of economists.

Sabic, which acquired General Electric Co.’s plastics unit for $11.6 billion in 2007, plans to hire banks to buy stakes in other companies or sell some of its units after completing an evaluation of its assets, Sabic’s acting Chief Executive Officer Yousef Al Benyan said in an interview last month. The measure is part of the company’s global restructuring to make itself more agile and cost-efficient, he said, without giving a specific timing.

“Fundamentally, the growth is there,” Al Ohali said. “What we are seeing is pressure on the pricing and the profitability.”

The company cited lower than average sale prices as one of the reasons behind a 13 percent drop in its first-quarter earnings. That is Sabic’s seventh straight quarterly decline, data compiled by Bloomberg show.

The Riyadh-based petrochemical maker plans to expand its business in Asia, the Middle East and China, and may borrow from capital markets “as investment opportunities materialize,” Al Ohali said.

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