Sabic, Almarai, and SEC are relatively insulated from Aramco’s fuel hike: Saudi Basic Industries Corporation (SABIC), Almarai, and Saudi Electricity Company’s (SEC) credit ratings and earnings are not expected to be significantly impacted by Saudi Aramco’s decision to hike feedstock and fuel price, according to an S&P Global report. The uptick in feedstock and fuel prices are expected to roll back some of the government’s subsidy obligations, with the freed up resources “potentially redeployed” to fund diversification initiatives.

The increases in fuel and feedstock prices will lead to marginal increases in production costs for Sabic, Almarai, and SEC earnings beginning in 1Q 2025, the report said. However, the rated firms are positioned to absorb these hikes without significant strain by increasing efficiency in operations and relying on some cost pass-through.

BACKGROUND- Saudi Aramco raised domestic diesel prices by 44% to SAR 1.66 per liter for 2025, following a similar 53% hike to SAR 1.15 per liter last year. This price adjustment is part of Aramco's annual review under its pricing mechanism. The company notified Tadawul-listed industrial firms of the price changes, which took effect on 1 January.

RATINGS BY COMPANY-

Sabic: Due to its strong links to the Saudi government, the commodity player’s credit rating is capped at Saudi’s sovereign rating (A/A1 — positive outlook). Sabic sources more than half of its domestic feedstock requirement from Saudi Aramco — which owns 70% of the company — at preferential rates. Accordingly, the fuel hike is not expected to significantly affect the company’s earnings, with Sabic expecting a 1% rise in cost of sales. Ebitda margins are expected to increase to 15-18% in 2024-2025, up from 14.9% margin in 2023. Despite an uptick in debt, leverage is expected to remain “comfortably below” that rating agency’s 2.0x threshold.

Sabic is also expected to receive additional support from the Saudi government in the event of shocks, due to its classification as a government-related entity and standing as a significant employer of Saudi nationals.

Saudi Electric’s (SEC) rating is also balanced with Saudi’s sovereign rating due to the “almost certain likelihood” that the government will back SEC in the event of shocks, S&P notes. A state-backed “unrestricted and uncapped balancing account” is expected to offset additional costs due to the diesel hike, similar to SAR bn 6-7 of additional costs in 2024 due to increases in gas prices, according to S&P projections.

Almarai: The dairy producer’s rating is expected to stay level at BBB- with a positive outlook. Despite incurring an additional SAR 200 mn in costs throughout the year due to the higher fuel prices and indirect impacts to other segments of its supply chain, the firm is expected to mitigate these effects via efficiency gains, cost optimization and other means, the report explained. Robust consumer spending, population growth, higher capacity and new products are expected to counteract increased costs.

ALSO IMPACTED BY THE PRICE INCREASES-

City Cement will incur a 7% increase in production costs following the fuel pricing update, the company said in a filing to Tadawul. City Cement also joined the industrial sector competitiveness program last year, with the move expected to mitigate some of the effects of the fuel price increase, the disclosure also said.

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