Sabic borrows billions to buy GE Plastics

Citigroup Inc., HSBC Holdings Plc, ABN Amro Holding NV and GE Capital will underwrite Saudi Basic’s loans and bonds, Mutlaq al-Morished, the Riyadh-based company’s chief financial officer, said in a phone interview Sunday. JPMorgan Chase & Co. may also join the group, he said.

``We will borrow US$9 billion by the third quarter and about 25 percent of that will be in bonds,’’ al-Morished said. GE Plastics ``is a U.S. company so this will be conventional borrowing, mainly in the U.S. and some in Europe’’.

State-controlled Saudi Basic, or Sabic, on May 21 said it will pay US$11.6 billion in cash for GE’s plastics unit to gain products and operations in the U.S., Asia and Europe. The purchase, a record for the Gulf region, will boost Sabic’s sales 29 percent from US$23 billion in 2006 and give it GE’s proprietary Lexan plastic used in roofs and lighting.

Shares of Saudi Basic rose 0.6 percent to 121.5 riyals as of 11:11 a.m. in Riyadh, valuing the company at 303.8 billion riyals (US$81 billion).

GE Plastics, based in Pittsfield, Massachusetts, uses benzene, a material derived from oil, for many of its products. The division had US$674 million in profit on sales of US$6.65 billion last year and controls plants and technology centers in 21 countries including China, India, Japan, Brazil and Thailand, according to its Web site.

Sabic’s advantage stems from its access to abundant sources of feedstock from state-owned Saudi Aramco, the world’s biggest oil company. The chemical maker exploits the natural gas released during Saudi Aramco’s oil extraction to achieve costs lower than U.S. and European competitors.

The company posted a record quarterly profit in the three months through March, when net income jumped 50 percent to 6.3 billion riyals. It opened its first manufacturing sites outside the Middle East in Germany and the Netherlands in 2002.

The Citigroup-led group of underwriters will now advise Sabic on how much of its US$9 billion borrowing should be in bonds and loans, al-Morished said.

The Saudi government owns about 70 percent of Sabic’s shares, with the rest restricted to investors in Saudi Arabia and the five other states of the Gulf Cooperation Council.

Sabic’s long-term debt is rated A1 by Moody’s Investors Service and A+ by Standard & Poor’s, their fifth-highest investment grades.

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