Saudi SABIC records $400 millions impairment loss on Clariant, Q3 profit plunges

Saudi Basic Industries Corp (SABIC) reported an 86% drop in third-quarter net profit on Sunday after taking an impairment charge of 1.5 billion riyals ($400 million) on its investment in Swiss chemicals firm Clariant. SABIC also warned that the new capacity in key product lines that has pressured its prices and margins this year would persist into 2020. "Given the current market conditions I would assume that the fourth quarter (results) will be more or less similar to the third quarter and the outlook for 2020 remains challenging," Chief Executive Yousef al-Benyan told reporters.

The world's fourth-biggest petrochemicals company posted a net profit of 830 million riyals for the quarter ended Sept. 30, down from 6.1 billion a year earlier. "The decrease in net income is attributable to lower average selling prices in addition to recording the 1.5 billion (Saudi riyal) impairment provision," it said. SABIC, which owns a 25% stake in Clariant, has said it has no interest in taking it over after the Swiss company shelved a joint venture plan with SABIC in July.

SABIC bought its stake in Clariant in January 2018. It did not disclose the value of the deal then, but based on market value the stock was worth $2.4 billion. (https://reut.rs/2PtEXXQ) The current market value of the stake is less than $1.8 billion.

SABIC has no intention of selling its Clariant stake, but has assessed it as it does all its investments, Benyan said on Sunday after taking a $400 million impairment loss on the stake. "This is a long-term investment so we remain committed to our long-term strategy and there are no changes so far," he said, answering a Reuters question on whether SABIC would look into selling its stake in the Swiss company. International financial reporting standards require companies to evaluate their assets and SABIC applies this procedure, he told reporters.

SABIC said in a statement it reassessed the carrying value of the stake based on a number of factors such as publicly available information and analysts' 12-month consensus forecasts for the stock. Benyan also said he does not expect any change to SABIC's strategy or growth due to the company's acquisition by state energy company Saudi Aramco.

Aramco agreed to acquire SABIC in a $69.1 billion deal this year. SABIC's revenue fell 23% from a year earlier to 33.69 billion riyals, it said. Shares in SABIC were down 1.1% in late morning trade. The stock is down 23% year-to-date, underperforming the benchmark Saudi index, which has gained nearly 1%.