Frankfurt am Main, June 25, 2020 -- Moody's Investors Service ("Moody's") has today downgraded to A3 from
A2 the senior unsecured notes ratings and to (P)A3 from (P)A2 the senior
unsecured MTN programme ratings of BASF (SE) (BASF or "the company") and
its guaranteed subsidiary BASF Finance Europe NV. It has also downgraded
to A3 from A2 and P-2 from P-1 the senior unsecured ratings
of revenue bonds guaranteed by BASF. Concurrently Moody's has also
downgraded to P-2 from P-1 the short-term rating
of BASF's commercial paper programme. The outlook for both entities
has been changed to stable from ratings under review. This concludes
the rating review for downgrade that was initiated on April 1, 2020.
The full list of affected ratings is included in the end of the press
release.
RATINGS RATIONALE
The downgrade of ratings to A3 reflects (i) BASF's rating ratios
that had already been weak for the A2 rating when entering the coronavirus
outbreak, which also limits the potential for improvement in case
of a recovery in 2021. With expected 2021 numbers the company would
not be in line with requirements to maintain an A2 rating, such
as a Moody's-adjusted EBITDA margins that Moody's expects
to reach levels of only around 13% in 2021; (ii) high gross
leverage with debt/EBITDA of 3.7x in 2021, even though this
is still a considerable improvement from the expected 4.5x in 2020;
and (iii) the emerging negative free cash (FCF) flow profile that Moody's
expects will become a feature of BASF as the company embarks on a large
capital spending programme in Asia and in the area of battery materials
coupled with an expectation of continued high dividend pay outs.
Moody's estimates negative FCF of about €1.0 billion
in 2020, around €2.0 billion in 2021 and €2.8
billion in 2022. The peak investments for BASF's seventh
Verbund site in South China, on which the company will spend up
to $10 billion until 2030, will occur between 2022 and 2024.
Moody's expects that the gap to cover negative FCF will be funded
primarily with divestment proceeds. These will largely stem from
the IPO proceeds and subsequent disposals of stakes in Wintershall Dea
GmbH (Baa2 negative), in which BASF holds a 72.7%
stake (book value of €12.4 billion at FYE 2019).
BASF's liquidity remains solid. BASF has taken the decision
of holding extra cash in excess of its usual cash balance of in the magnitude
€2.0 -- 3.0 billion. This is to bolster
its liquidity in the wake of the coronavirus outbreak. As the uncertainty
from the coronavirus outbreak recedes and the economy resumes its path
towards normalization, BASF will over time reduce its excess cash
balance towards levels of €2.0 billion and €2.5
billion. The company signed additional short-term €3.0
billion credit facilities maturing in 2021 and accessed the European Commercial
Paper Market. In May, BASF issued €2.0 billion
of long-term bonds, including its first green bond,
to refinance short-term debt. The next bond matures in November
2020 and we expect BASF to repay the €1.0 billion bond.
The company at its June 2020 AGM ruled out any share buybacks for 2020.
The A3 rating also takes into account BASF's exposure to more volatile
petrochemicals and intermediates (Chemicals segment) as well as its plastics
and monomers (Materials segment) businesses, that in 2019 accounted
for about 36% of group sales. These segments were the main
contributor to the declining earnings in 2019 and in Q1 2020 when EBIT
before special items of these two segments fell by 43% (Chemicals)
and 35% (Materials) year-on-year respectively.
The contribution from more resilient end markets such as agriculture,
consumer goods and health and nutrition has not been sufficient to offset
the decline in BASF's commodity business. BASF's exposure
to the transportation end market, which includes the automotive
sector, ranges between 10%-20%. Moody's
does not assume a recovery to 2019 levels in the global automotive market
before 2023, which will structurally weigh on BASF.
RATIONALE FOR STABLE OUTLOOK
In its decision to stabilize the outlook, the rating agency has
taken into consideration actions that will bolster the company's
liquidity profile and that will help to fund the company's negative
FCF: (i) proceeds from divestitures including construction chemicals
and pigments -- both closing in 2020 -- for combined gross proceeds
of around €4.3 billion (cash and debt free); (ii) the
monetization potential from the IPO -- expected to be postponed to
2021 owing to volatile oil and gas prices year-to-date --
of Wintershall Dea GmbH.; (iii) higher cash balances that
the company holds as a precautionary measure in response to the coronavirus
outbreak; and (iv) actions taken that preserve liquidity such as
reduction of capital investments.
Moody's regards the coronavirus outbreak as a social risk under Moody's
ESG framework, given the substantial implications for public health
and safety.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade ratings to A2 if BASF achieves an RCF to net debt
ratio of at least 25% on average through the cycle and sustainably
maintains debt to EBITDA below 3.0x. Moody's could downgrade
ratings if RCF to net debt were not to improve towards 20%,
the Moody's-adjusted EBITDA margin does not improve towards
levels of 15% and if gross leverage is sustained above 3.5x.
LIST OF AFFECTED RATINGS:
..Issuer: Ascension (Parish of) LA
Downgrades, Previously Placed On Review For Downgrade:
....BACKED Senior Unsecured Revenue Bonds,
Downgraded to A3 from A2
....BACKED Other Short Term, Downgraded
to P-2 from P-1
..Issuer: BASF (SE)
Downgrades, Previously Placed On Review For Downgrade:
....Commercial Paper, Downgraded to
P-2 from P-1
....Senior Unsecured Medium-Term Note
Program, Downgraded to (P)A3 from (P)A2
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A3 from A2
Outlook Actions:
....Outlook, Changed To Stable From
Ratings Under Review
..Issuer: BASF Finance Europe NV
Downgrades, Previously Placed On Review For Downgrade:
....BACKED Senior Unsecured Medium-Term
Note Program, Downgraded to (P)A3 from (P)A2
....BACKED Senior Unsecured Regular Bond/Debenture,
Downgraded to A3 from A2
Outlook Actions:
....Outlook, Changed To Stable From
Ratings Under Review
..Issuer: Brazoria County Brazos River Hrbr.
Nav. Dist.
Downgrades, Previously Placed On Review For Downgrade:
....BACKED Senior Unsecured Revenue Bonds,
Downgraded to A3 from A2
....BACKED Other Short Term, Downgraded
to P-2 from P-1
..Issuer: Port Arthur Navigation District Ind Corp,
TX
Downgrades, Previously Placed On Review For Downgrade:
....BACKED Senior Unsecured Revenue Bonds,
Downgraded to A3 from A2
....BACKED Other Short Term, Downgraded
to P-2 from P-1
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Chemical Industry
published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
COMPANY PROFILE
Based in Ludwigshafen, Germany, BASF (SE) in 2019 reported
EBITDA of €8.2 billion and EBIT before special items of around
€4.6 billion on sales of around €59.3 billion,
which is equivalent to an EBITDA margin of 13.8% and an
EBIT bsi margin of 7.8%.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Martin Kohlhase
VP - Senior Credit Officer
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Matthias Hellstern
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
