Riyadh, Saudi Arabia – SABIC shares hit their lowest level since 2009. Will an asset-based diet save the Saudi chemical giant? Amid the UAE’s expansion in the global chemicals sector, XRG, the investment arm of Abu Dhabi National Oil Company (ADNOC), acquired German company Covestro last year.
Shares of Saudi Basic Industries Corporation (SABIC) touched their lowest point since 2009 after a sharp decline in trading on Thursday. This development reflects market concerns about the repercussions of the company’s extensive restructuring amid pressures affecting the global chemicals sector.
The decline coincided with SABIC’s announcement of what it described as a “strategic withdrawal” from European and American markets. This is being done through major divestment deals aimed at reducing assets and focusing operations in more profitable markets.
Details of the “reduction plan”
SABIC announced its agreement to divest a significant portion of its European and American operations. This was achieved through two deals totaling approximately $950 million (equivalent to SAR 3.5 billion).
The deals included the sale of its entire petrochemicals business to Equita Investment Group. They also included the sale of its engineering thermoplastics business to the German restructuring firm Motaris, which has assets in the United States, Mexico, Brazil, the Netherlands, and Spain.
Why is SABIC moving out of the West?
Analysts believe that SABIC has begun implementing a kind of mandatory “asset diet.” This is an attempt to address three main challenges. The most prominent is the rising energy costs in Europe, which have made operating its plants there an increasing financial burden. This is compounded by the slowdown in major economies and the decline in demand for chemical products. Additionally, the company aims to redirect its resources toward the Saudi market and high-growth Asian markets.
Market earthquake
The Saudi stock market, Tadawul, reacted strongly to the restructuring news. SABIC shares fell 4.8% to 48.20 riyals, their lowest level since April 2009. This reflects investor concerns about continued pressure on profit margins in the global chemicals sector.
Regional landscape: A race for leadership
SABIC’s downsizing of its international operations comes at a time of accelerating economic transformation in the Middle East. Countries are striving to diversify their revenue streams away from oil. Meanwhile, other regional powers, such as the UAE’s ADNOC, are expanding their global presence in the chemicals sector. This is evident in its investment arm XRG’s acquisition of the German company Covestro last year. As SABIC reassesses its strategy, the question remains whether focusing on efficiency and reducing its extensive geographical reach will be enough to save the Saudi chemical giant and maintain its position on the global competitive landscape.
