Saudi conglomerate SABIC considering initial public offering (IPO) for its gas division

Saudi conglomerate SABIC considering initial public offering (IPO) for its gas division

In a significant move, Saudi Arabia's largest petrochemical company, SABIC, has announced plans to conduct a strategic review of its business, which includes the potential Initial Public Offering (IPO) of its 74%-owned subsidiary, the National Industrial Gases Company (NIGC). This decision reflects SABIC's efforts to optimise its portfolio and navigate the challenges facing the global chemicals industry.

The chemicals sector is grappling with weak demand, high input costs, and lower prices, resulting in squeezed margins. SABIC's first-quarter net loss of $323 million is a testament to these industry-wide struggles. In response, SABIC has planned to cut costs, find new investment opportunities, and restructure some core assets.

The proposed IPO of NIGC, a leading player in Saudi Arabia's industrial gases market, is expected to unlock substantial shareholder value and improve SABIC’s financial position. By floating NIGC on the Tadawul stock exchange, SABIC could generate considerable proceeds, which are expected to support its $4 billion capital expenditure plan through 2025, predominantly focused on emissions-reduction and energy-efficiency projects.

This capital infusion would enable SABIC to pivot towards higher-margin, sustainable ventures such as low-carbon ammonia production and carbon capture technologies, addressing decarbonization pressures in the chemicals industry. Moreover, the IPO is expected to bolster SABIC’s liquidity and improve its financial health after recording losses due to restructuring and cost pressures.

The strategic review also includes offloading non-core businesses, such as SABIC's steel business Hadeed, and its stakes in Aluminium Bahrain (Alba). These divestments aim to reduce operational complexity and cost base, enabling management to focus on its petrochemical business's growth-oriented sectors.

The IPO of NIGC is not the only option being considered. Each option is subject to financial, technical, regulatory, and economic assessments. However, this move aligns with SABIC’s portfolio optimization and core business focus strategy, and dovetails with Saudi Arabia’s broader industrial ambitions and Vision 2030 goals for economic diversification.

In conclusion, SABIC’s strategic consideration to IPO its National Industrial Gases Company is a well-timed response to the current chemicals industry's challenges. It aims to strengthen SABIC’s financial position by generating cash to fund sustainability initiatives and operational restructuring, which should improve profitability and shareholder returns in the medium to long term. This move also aligns SABIC with regional industrial ambitions and global trends toward cleaner chemical production and sustainability.

**Table:**

| Strategic Option | Impact on Financial Position | Impact on Shareholder Value | Industry Context | |-----------------------------------|----------------------------------------------------|-------------------------------------------------|--------------------------------------------------| | IPO of National Industrial Gases | Raises significant capital for capex and restructuring | Unlocks value, attracts investors, potential share price uplift | Navigating margin pressures, feedstock volatility, and decarbonization demands | | Portfolio Optimization (focus shift) | Reduces operational complexity and cost base | Higher profitability potential from core high-margin sectors | Aligns with sustainability and growth trends | | Capital redeployment to green tech| Supports investments in emissions-reduction and energy efficiency | Long-term value creation through sustainable growth | Industry pivot to net-zero emissions by 2050 |

1. The IPO of NIGC, a leading player in Saudi Arabia's industrial gases market, has the potential to significantly improve SABIC’s financial position by generating substantial proceeds.
2. The strategic review, which includes the potential IPO of NIGC, is also focusing on offloading non-core businesses to reduce operational complexity and cost base, thereby enabling management to focus on growth-oriented sectors.
3. The proposed IPO and portfolio optimization by SABIC dovetail with Saudi Arabia’s broader industrial ambitions and Vision 2030 goals for economic diversification, particularly towards cleaner chemical production and sustainability.

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