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26 Jan 2009
London, 26 January 2009 -- Moody's Investors Service has today downgraded the ratings of BASF SE
(BASF) and its guaranteed subsidiaries by one notch to A1 and assigned
stable outlook to the ratings. The Prime-1 rating for short
term debt remains unchanged.
This rating action concludes the ratings review process initiated by Moody's
on 15 September 2008 following the announcement by BASF of the debt-funded
acquisition of Ciba Holding Inc. (Ciba, rated Baa2/under
review for uncertain). The ratings of Ciba will remain under the
review until BASF confirms the structural treatment of the acquired liabilities
of the company.
Moody's positively assesses the acquisition of Ciba in line with
BASF's long-standing strategy emphasizing operational integration
and continuous improvement of the specialty characteristics of its broadly
diversified chemical portfolio. However, the acquisition
entails a substantial increase in debt of the group at the time when the
operating environment does not support deleveraging efforts, leading
to the expected sustained weakening of the financial metrics below the
levels previously indicated for Aa3 category. Taking into account
the acquisition (that is expected to be concluded in the first quarter
of 2009), Moody's estimates that the group's leverage
at the end of 2008 is likely to increase towards x1.5 times on
fully adjusted net debt basis.
Notwithstanding the expected deterioration in financial metrics during
the downturn in the cycle, the positioning of BASF ratings at the
high end of the single-A category reflects the company's
strong business profile, as well as Moody's positive assessment
of the on-going measures executed by BASF in the face of rapid
deterioration of trading environment in the last quarter of 2008.
Moody's notes that the company enjoys a high degree of operating
and financial flexibility, as it continues to generate substantial
cash flow. Furthermore, at the end of 2008 the company suspended
its share buy back programme to support its current focus on cash flow
The stable outlook on the ratings is also underpinned by the assumption
that the group will continue to manage its financial policy with the view
to maintain financial flexibility required for implementation of its growth
strategy in a less supportive economic environment. Moody's
expects that the group's focus on cost optimization and working
capital management will further support cash flow generation through the
downturn and allow the group to maintain the key credit metrics within
Moody's target range for the current rating (including Retained
Cash Flow to Net Debt in the mid to high thirties and strong FCF coverage).
The group maintains strong liquidity position, supported by sustained
operating cash flow generation, as well as its substantial cash
balances and EUR 6.7 billion available under the committed facilities
at the end of 2008, including a CHF 3.5 billion acquisition
facility. Moody's notes that BASF enjoys an even repayment
profile with about EUR 1 billion in bonds maturing in 2009 and 2010.
For the assignment of this rating, Moody's has used its methodology
for the Global Chemical Industry, which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating this issuer can also
be found in the Credit Policy & Methodologies directory.
The last rating action on BASF was on 15 September 2008 when the rating
agency palced the ratings under review for downgrade following the announcement
of the acquisition of Ciba.
Based in Ludwigshafen, Germany, BASF is the world's largest
chemicals group by revenues, reporting global sales of around EUR
48 billion and EBIT of EUR 6.2 billion for nine months 2008.
David G. Staples
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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