S&P cuts BASF on weak markets, Ciba acquisition

12 February 2009 18:26  [Source: ICIS news]

TORONTO (ICIS news)--Standard & Poor’s (S&P) has lowered its ratings for BASF’s debt as weak markets, lower operating results and the acquisition of Ciba will strain the Germany chemicals major’s balance sheet, it said on Thursday.

The Ciba deal would further increase BASF's debt at a time when operating earnings were coming under significant pressure, the analysts said.

Other factors likely to weaken the balance sheet were sizable capital expenditures and a shareholder-friendly financial policy, the credit ratings agency said.

S&P lowered BASF’s long- and short-term corporate credit ratings to “A+/A-1”, from “AA-/A-1+”, it said, adding that the outlook on the ratings was negative.

"The negative outlook on BASF reflects our expectation that prolonged weak demand for chemical products could result in significantly weaker profitability and subsequently weak credit metrics for the current rating,” S&P said.

The company had significantly reduced its financial flexibility over the past few years as a result of acquisitions and sizable shareholder returns, thus hurting its credit quality, the analysts said.

The acquisition of US catalysts firm Engelhard, the Degussa construction chemicals business, Ciba and others had reduced BASF's exposure to the petrochemicals cycle, S&P noted.

However, those deals had also increased its exposure to the automotive and construction sectors which were currently among the most challenged markets for the chemicals industry, the analysts said.

S&P also lowered BASF’s business risk assessment to “strong,” from “excellent,” it added.

BASF's shares were down 3.65% to €24.05 ($30.83) on the Xetra stock exchange in Frankfurt.

($1 = €0.78) 

For more on BASF visit ICIS company intelligence
To discuss issues facing the chemical industry go to ICIS connect

By: Stefan Baumgarten
+1 713 525 2653

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly