Fitch affirms SABIC at 'A' with stable outlook

Saudi Basic Industries Corp.’s (SABIC) long-term issuer default rating (IDR) was reaffirmed by Fitch Ratings at 'A' with Stable Outlook. Fitch has also affirmed SABIC's short-term IDR at 'F1+'. 

SABIC's rating is aligned with that of its parent Saudi Arabian Oil Company (Saudi Aramco, A/Stable), reflecting overall moderate ties between the two companies. This is in accordance with Fitch's Parent and Subsidiary Rating Linkage criteria, which we apply following SABIC's acquisition by Saudi Aramco. 

SABIC's Standalone Credit Profile (SCP) remained unchanged at 'a+', which reflects its cost leadership and conservative financial profile.  

SABIC's leverage should remain strong, Fitch noted, desite its forecast that SABIC’s 2020 revenue will drop almost by 25% and the 2020 EBITDA margin will fall to around 20%, on COVID-19 disruption complicating the lasting oversupply in petrochemical markets.  

“We expect free cash flow to turn negative at 8% of sales in 2020-2021, but funds from operations (FFO) net leverage to increase to 0.5x by end-2021 from -0.1x at end-2019, staying at a moderate level,” the rating agency added. 

An upgrade of Saudi Aramco could lead to positive rating upgrade.  

Meanwhile, the factors that could, individually or collectively, lead to negative rating action/downgrade include a negative rating action on Saudi Aramco, Fitch added.