SABIC expected continued losses from divested assets if retained: CFO

Salah Al-Hareky, Executive Vice President and Chief Financial Officer of Saudi Basic Industries Corp (SABIC)

Salah Al-Hareky, Executive Vice President and Chief Financial Officer of Saudi Basic Industries Corp (SABIC), said that the recent divestments carried out by the company are fully aligned with its current long-term strategy, which focuses on maximizing value through disciplined capital management and allocation.

In statements to Al Arabiya Business, Al-Hareky clarified that periodic reviews of the company’s strategy and financial analysis showed that these assets were underperforming, as they generated huge cash losses amounting to $3.4 billion between 2022 and 2025. These losses were expected to continue at $800 million to $1 billion annually, reaching around $4 billion over four to five years if the assets had been retained.

He added that completely shutting down these assets was among the available options, but this would have cost the company approximately $5 billion. “Through strategic divestment, SABIC has been able to eliminate a chronic burden, halt future cash drain, avoid substantial financial obligations, and improve the efficiency of capital utilization and allocation—an outcome he described as the most important benefit,” he said.

Al-Hareky highlighted that SABIC had previously recorded provisions for these assets, though not in full, amid some optimism during earlier reviews that the petrochemicals market might improve. However, after several years, it became clear that a full recovery would not materialize in a way that would significantly alter the future performance of these assets.

The petrochemicals sector is undergoing structural rather than cyclical changes, necessitating a strategic shift in the company’s investment direction as part of its regular strategy reviews, said the CFO, adding that SABIC now has a comprehensive portfolio optimization program that focuses on competitive advantage, higher returns, and greater sustainability.

“Divestments are not a new development for SABIC, having begun some time ago. Previous divestments included Hadeed, functional compounds businesses, SABIC’s investment in Alba Aluminum, and the closure of two cracker plants in Europe. The latest divestments are a natural extension of the same approach and strategy,” Al-Hareky said.

The recent structural changes in the global petrochemicals market include significant excess production capacity, slowing growth, and intense global competition—particularly from China. These assets also faced high operating and capital expenditure costs, in addition to increasing regulatory and environmental requirements, which were especially complex in Europe, particularly with regard to carbon emissions, according to the official.

He noted that the losses recorded from these divestments are preliminary estimates, and that the exact value of the losses will be determined upon finalizing the financial statements.

Al-Hareky added that the divestment of engineering plastics assets in Europe was valued at $450 million, and the transaction was structured to generate additional value of around $1 billion through an earn-out mechanism, without SABIC bearing downside risks related to capital spending or cash flow losses. This mechanism has tangible value and helps reduce accounting losses.

According to the CFO, these are potential proceeds that may be recognized in the future depending on the performance of the assets. The transaction was completed with private equity funds specializing in restructuring and cost reduction. SABIC expects to receive earn-out proceeds exceeding the $450 million transaction value.

Regarding SABIC’s European petrochemicals assets, Al-Hareky said the announced transaction value was $500 million, structured through a perpetual debt instrument. He added that any future profits achieved by the buyer after integrating the assets—alongside assets acquired from LyondellBasell—would help accelerate repayment of the perpetual debt to SABIC.

Additionally, divesting assets with negative returns and cash flows will improve return on capital, strengthen cash flow quality, and preserve the company’s strong financial position. Most importantly, it will ensure that capital is directed toward areas that generate the greatest long-term value, support sustainable growth, enhance shareholder value, and maintain and grow cash dividends in the future, he added.

Al-Hareky further stated that while these decisions were not easy, they were necessary to build a stronger and more competitive SABIC for the next phase.

According to Argaam’s data, SABIC recently announced the sale of several of its businesses in Europe, North America, and South America, expecting record non-cash losses of SAR 18.3 billion.