In the wake of one of the most significant developments in the chemicals and plastics industry in which Sabic signed an agreement to acquire GE Plastics for $11.6 million, the Saudi petchem giant has begun the process of raising a major portion of the cost as debt to finance the buyout

Sabic plans to borrow $9 billion, a quarter of which it sees as coming from bonds with the remainder coming from different term-loans, according to its chief finance officer Mutlaq Morished who was quoted in a Wall Street Journal report. The financing arrangements are expected to be completed by the end of the third quarter.
Sabic has listed five banks in the underwriter team, namely Citigroup, ABN Amro Holding NV, HSBC Holdings PLC, GE Capital and JP Morgan Chase and Company.
According to the report, Morished said Sabic would raise $2.3 billion in traditional though not Islamic bonds and had yet to decide whether they will be US dollar or Euro dominated or both. Some 50 to 55 per cent of the debt would come from term loans that sold to institutional investors, while another 15 to 20 per cent would come from traditional loans. Sabic also planned to provide $2 billion to $3 billion in equity to finance the acquisition.
Moody’s Investor Service noted that while the acquisition was expected to result in a material increase in Sabic’s debt leverage in the short term, it believed that the cash- and debt-funded acquisition could be accommodated within the current AI rating given the significant financial flexibility currently enjoyed by Sabic as a result of the strong free cash flow generated in recent years and taking account of the large capital expansion programmes to be executed by the company till 2010. 
Moody’s has also noted that Sabic has reported consolidated revenues exceeded SR86 billion in 2006.
“As a global operating company, Sabic has a long-term, strategic interest in the people, communities, customers, products, plants and technology of GE Plastics,” said Mohamed Al-Mady, vice chairman and CEO of Sabic.
“This acquisition represents another important step in Sabic’s growth and diversification to become one of the world’s leading manufacturing companies,” he said. “This business is complementary to our existing business without any overlaps. Sabic’s intention is to grow the business globally. Sabic is well-positioned to do this, while adding high-performance plastics to the product range it currently offers to customers.”
Sabic is investing as much as $30 billion to boost output to 80 million tonnes per year by 2012 from 49.1 million tonnes in its Saudi plants last year. The company expects to borrow $29 billion in the next three years to fund expansions.
 In earlier deals, Sabic has acquired the DSM Petrochemicals business in Europe and the Huntsman Petrochemicals business in the UK.  In each case, existing management teams continued to manage the business, and have been given Sabic’s support to implement various investment and growth initiatives.
Jeff Immelt, chairman and CEO of GE, said: “GE selected Sabic as the winner of this auction both for price as well as the company’s premier position as one the world’s fastest growing, innovative companies.
“With a strong reputation as a safe, responsible and efficient operator of large, state-of-the-art chemical plants, coupled with a commitment to investment in technology, Sabic is the smart choice to grow the GE Plastics unit.”
Sabic Americas, based in Houston, is the foundation for the company’s long-standing commitment to US operations, having operated here for more than 20 years.  Sabic also has long-term partnerships with prominent companies like ExxonMobil and Shell. 
“Sabic has deep roots in America and extensive experience in operating in the US as a leading chemical company,” explained Al-Mady.  Sabic currently employs more than 200 people in the US through its own operations and a joint venture in New Jersey, plus another 500 people who are employed indirectly through suppliers.  With the acquisition, Sabic employment will swell to 30,000 people.  With worldwide manufacturing operations, GE Plastics is well-positioned to meet the needs of global customers under Sabic’s ownership, GE said.