BASF top claimant of UK's coronavirus recovery package with £1.0bn funding

Author: Morgan Condon

2020/06/05

LONDON (ICIS)--BASF received the biggest bailout from the Bank of England’s (BoE) €16.2bn recovery fund, the UK’s central bank announced on Friday.

The Covid Corporate Financing Facility (CCFF) rolled out by the UK’s Chancellor of the Exchequer Rishi Sunak to support companies impacted by lockdown measures.

The German major topped the list of 53 recipients receiving the biggest portion of the fund at £1bn, and while it was the only chemicals producer listed, companies linked to the sector also gained from the scheme.

BASF topped the list of 53 recipients receiving the biggest portion of the fund.

Among those listed, pharmaceuticals major Bayer received a £600m, Polypipe Group were given £100m and Dutch-headquartered coatings firm AkzoNobel were granted a £30m loan.

Further down the value stream, companies in the oil and gas, aviation, automotive, engineering and construction sectors were also provided with funding through this scheme to support liquidity among larger firms.

Companies were legible for the grant if they were an investment-grade company found to make a material UK contribution who are not regulated by the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA).

Short-term loans through the CCFF enables the BoE to commercial paper from firms at repayable rates between 0.2-0.6%.

Although the UK is breaking ties with the EU as Brexit negotiations rumble on, BASF retaining a UK base may ease some of the difficulties European chemicals companies face as the nation faces detachment from Reach regulation.

Funding for emission-heavy companies has faced criticism from environmental campaigners who argued that loans should be issued to help the UK pivot to meet emissions targets.

BASF issued its commercial paper under the initial scheme published by the UK Treasury on 17 March, and has no intention to issue commercial paper under new conditions.

Businesses applying under the second trenche are expected to provide a letter to the Treasury committing to "showing restraint on the payment of dividends and other capital distributions and on senior pay" while the commercial paper is outstanding.

The scheme will operate for "at least 12 months, and for as long as steps are needed to relieve cash flow pressures on firms that make a material contribution to the UK economy," according to government guidelines.

"We consider the purchase of commercial paper to be a customary financial market transaction under our existing commercial paper program. The transaction does not have the character of state aid, and BASF neither asked for, nor was it granted any subsidies," said BASF in a statement.

"BASF’s financing policy aims to ensure the company’s liquidity at all times, limiting the risks associated with financing and optimising our cost of capital...Our global commercial paper program, which has an issuing volume of up to $12.5 billion and has been in place for more than 20 years, is used for short-term financing, while corporate bonds are used for financing in the medium and long term."

Front page picture: BoE's headquarters in the City of London
Source: Will Oliver/EPA-EFE/Shutterstock