Sabic, the Middle East's largest petrochemicals company, swung to profit in the second quarter earning 7.64 billion Saudi riyals ($2bn) after posting a 2.22bn Saudi riyals loss in the same period last year, amid higher selling prices and is on course and confident about its future performance, its vice chairman and chief executive said.
Second-quarter profit beat the average 6.1bn riyals forecast of six analysts, according to Refinitiv data. Revenue for the three months ending in June rose 72.2 per cent to reach 42.42bn Saudi riyals, compared with the same period last year, Sabic said in a regulatory filing to the Tadawul stock exchange, where its shares trade.
“Sabic’s financial performance in the second quarter was strong – continuing the margin improvement seen during the first quarter of 2021," said Yousef Abdullah Al Benyan, vice chairman and chief executive of Sabic.
"This was driven by higher sales volumes and prices, supported by a rise in oil prices and a healthy supply and demand balance for most of our key products as the global economy continued its path to recovery.”
Brent crude oil prices increased about 13 per cent in the second quarter from the previous three months. Oil prices are nearly 40 per cent higher year-to-date as economies open up and industrial demand for chemicals and feedstocks increases.
Sabic, which is majority owned by Saudi Aramco, benefited from higher prices for naphtha in North Eastern and European markets, which helped boost its profitability.
The chemicals producer posted a first-half net profit of 12.51bn Saudi riyals compared with a 3.27bn loss in the same period last year. Revenue in the first six months of the year increased about 80 per cent, around 46 per cent more than the same period in 2020.
Looking ahead, Mr Al Benyan said 2021 is "on course to be a stronger year" than 2020 and demand is expected to continue to be strong in the second half of this year as the global economy rebounds.
"In the second half of 2021, we expect margins to [be] moderate but to remain healthy as oil prices and feedstock costs remain elevated, while existing supply constraints ease and new supply capacity comes on line," he said.
"We remain confident about our path forward and we are making good progress towards achieving our value creation objectives with Saudi Aramco."
The company remains focused on generating maximum value from synergies with Saudi Aramco, Mr Al Benyan said.
Saudi Aramco, the world's largest oil-exporting company holds a 70 per cent stake in Sabic. The company acquired the share worth $69.1bn from the kingdom's sovereign wealth fund, the Public Investment Fund, in 2019.
"Between the deal close [June 2020] and the end of Q2 2021, Sabic has achieved a synergy value of $230 million. Procurement was a major contributor in the value creation recorded in the second quarter of 2021. This was achieved by leveraging Sabic and Saudi Aramco purchasing power and applying warehouse and logistics optimisation methods."
The company's earnings before interest, tax, depreciation, and amortisation (Ebitda) rose 31 per cent quarter-over-quarter to reach 13.63bn Saudi riyals in the second quarter.
The company credited the increased margins to "higher average sales prices and sales volumes".
Increasing feedstock prices and higher selling and distribution expenses due to a rise in freight costs during the second quarter of 2021 partially offset the higher sales volumes compared with the previous quarter, Sabic said.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
