Fuel price hikes to have limited impact on rated Saudi firms: S&P

S&P Global said in a recent report that increased fuel prices in Saudi Arabia will lead to a marginal rise in production costs for rated Saudi corporates. However, this hike may have a tangible impact on profit margins and competitiveness for a large number of Saudi market players.

In an emailed report to Argaam, the agency said the additional cost will be reflected in companies’ financial statements starting Q1 2025.

The sheer scale of projects--estimated at more than $1 trillion in total--suggests large funding requirements. Higher feedstock and fuel prices would help reduce subsidy costs for the government, with those savings potentially redeployed to Vision 2030 projects.

Rated companies are expected to mitigate marginally higher production costs by enhancing operational efficiencies and potentially via pass-through mechanisms, S&P added.

Major petrochemical player Saudi Basic Industries Corp. (SABIC), Almarai Co. and Saudi Electricity Co. (SEC) can manage the higher costs, with no meaningful impact on credit quality. 

For SABIC and Almarai, the feedstock price hikes will not affect profitability significantly. In the case of utility company, SEC, additional support will likely come from the government if needed.

The rating agency highlighted that SABIC’s (A/Positive/--) healthy balance sheet and advantageous cost position will continue to support the company’s credit rating. The company is expected to outperform global peers in terms of profitability.

The rise in feedstock prices is not expected to have a tangible impact on profitability, as the cost of sales will grow by just 20%, based on the company’s estimates.

Moreover, the adjusted EBITDA margins are forecast to range between 15% and 18% on average in 2024-2025.

On Almarai (BBB-/Positive/--), S&P said the dairy producer’s revenue is projected to grow between 6% and 12% in 2025, amid enhanced healthy consumer spending and population growth to sales volume, in addition to additional production capacities of new products.

By balancing revenue growth with cost inflation, Almarai's EBITDA margin is expected to stabilize between 21% and 22% over the next 12-24 months.

For SEC (A/Positive/--), operational flows/debt ratio is forecast to range between 17% and 24% in 2025 and 2026. Debt/EBITDA is also seen at 3.5-4.5x.

The Saudi utility is expected to spend about SAR 125 billion on new assets from 2024 to 2026.

Saudi Aramco lifted fuel and feedstock prices as of Jan. 1, 2025. The last hike was implemented in early 2024, Argaam earlier reported.