Sabic Drops 8.7% After Third-Quarter Net Declines

By Glen Carey

Oct. 19 (Bloomberg) -- Saudi Basic Industries Corp., the biggest company in the Persian Gulf by market value, fell as much as 9 percent in Riyadh trading after reporting its first decline in quarterly profit in more than two years.

Sabic retreated 8.7 percent to 86.75 riyals, valuing the company at 260.3 billion riyals ($69 billion). Sabic, which is 70 percent owned by the Saudi government, has dropped 18 percent in the past two days and 48 percent this year.

Third-quarter net income declined to 7.24 billion riyals from 7.4 billion riyals a year earlier, Riyadh-based Sabic said yesterday after the market closed. The chemical maker was expected to report a 6.8 percent rise to 7.9 billion riyals, according to the average of three analyst estimates compiled by Bloomberg.

``What hurts Sabic is the bad economic environment in Europe and the U.S.,'' Laurent Gally, an industry analyst at Dubai-based Shuaa Capital PSC, said today in a phone interview in Dubai. ``Demand for steel is also slowing significantly in Saudi Arabia.''

The global economic crisis may reduce demand for Sabic products after it expanded in the U.S. and China. Last year, it bought the plastics business of General Electric Co. for $11.6 billion. The purchase, the largest by a Gulf-based company, added a network of factories making resins and thermoplastic sheets used in cars, roofs and lighting just as the auto and construction industries cut output.

Expansion

``The expected global recession may lead to a decline in demand for products in most of the international markets,'' Chief Executive Officer Mohamed al-Mady said yesterday.

Sabic's expansion in the U.S. has come at a time when General Motors Corp. and Ford Motor Co. are cutting costs and paring output after each lost at least 17 percent in U.S. sales this year. Debt markets have also seized up as the U.S. housing market suffers its worst slump since the Great Depression.

In Saudi Arabia, Sabic has lowered its reinforced steel prices as of today by 1,245 riyals a ton ($330.72), bringing the reduction to 43 percent since September.

``Some construction companies may not be able to buy the steel because they are having financing problems,'' Gally said. ``The steel division's contribution to Sabic earnings is going to slow significantly.''

Saudi Arabian Fertilizer Co., which is 43 percent owned by Sabic, declined 9.9 percent to 143 riyals in Riyadh, valuing the company at 35.8 billion riyals.

To contact the reporter on this story: Glen Carey in Dubai at gcarey8@bloomberg.net.