Saudi Arabia, seeking to expand petrochemicals production and diversify the economy, will tap debt markets to benefit from falling Middle East debt yields, officials from the Kingdom's main oil and chemicals makers said. Saudi Arabian Oil Co. plans to borrow to support its expansion in chemicals, Chief Executive Khalid Al-Falih said Oct. 8. The company is planning about $26 billion in refineries and petrochemical facilities that may sell debt next year. Saudi Basic Industries Corp., the world's second-biggest petrochemicals producer, may also sell bonds next year to refinance existing borrowings, its CEO said. Gulf oil producers like Saudi Arabia, neighboring Qatar and the United Arab Emirates are expanding petrochemicals output to benefit from transforming their oil and natural gas reserves into more valuable products, like plastics. Saudi Arabia aims to attract foreign investors to build clusters of manufacturing industries around refineries and chemical plants to create jobs. Saudi Aramco and Dow Chemical Co. plan to tap debt markets to fund a about $20 billion petrochemical plant at Jubail, Al-Falih said. “It's a big project that needs a lot of debt,” he said at a contract signing ceremony for the plant in Dhahran Oct. 8. Aramco plans to sell part of its 65 percent stake in the facility in an initial public offering that would take place at the earliest in late 2013, he said. That project and another Aramco venture with Sumitomo Chemical Co. of Japan at Rabigh on the Red Sea coast are planning both debt and share sales to raise cash, executives from the ventures said. Rabigh Refining & Petrochemicals Co., a fuel producer, will sell additional shares to existing and new investors to fund the growth plan, Chief Executive Officer Ziad Al-Labban said Oct. 2 in an interview in Dubai. The company may also do a mix of bank borrowing and export-credit financing for the plan, he said. That project is set to cost about $6 billion. “Saudi Arabia's megaprojects all need an IPO and a debt element for funding,” Brad Bourland, chief economist at Jadwa Investment Co., said at a conference in Abu Dhabi Oct. 17. “They'll continue going to the capital markets for both traditional and Islamic funding, which makes sense since debt is cheaper than equity and companies like Saudi Aramco can raise money very cheaply.” “We're optimistic on issuance in the region and the appetite for bonds and sukuk,” Gabriel Sterne, an economist with emerging markets specialist Exotix Ltd. in London, said Oct. 20. “Over the next year, markets will be more discriminatory and that should favor regional bonds.” The extra yield investors are demanding to hold Middle East bonds over US government debt narrowed 40 basis points over the past three weeks to 420 basis points, from this year's Oct. 4 high, JPMorgan data show. The chief investment officer of NCB Capital Faysal Badran said that “this really hasn't happened yet, but I have a pretty good degree of confidence that it is 2012 business.” “The expectation is that yields will stay down,” Paulina Chahine, an economist at NCB added.
