BASF SE

The negative outlook reflects that we may lower the rating in the next 12 months. This could stem from adverse market conditions, notably linked to the pandemic, the deterioration in auto markets, and the weakening of upstream chemicals margins. Notably, adjusted FFO to debt of below 25%, which is lower than the weak 2019 level, has significantly weighed on the rating. We could downgrade BASF if it failed to swiftly improve its S&P Global Ratings-adjusted FFO-to-debt ratio to 35% by 2021. This would rely on timely market recovery, disciplined capex, and efficient working capital management. The current rating on BASF also relies on the progress of the IPO of Wintershall Dea, now in our base case. At least neutral discretionary

...Significantly pressured credit metrics in 2020. In line with the company's published outlook, we currently anticipate BASF's EBIT before special items (company defined) to reach about 3 billion in 2020. This is about 1.5 billion, or more than 30% lower than the 2019 level. The dip in operational performance is due to the adverse market conditions linked to the coronavirus pandemic, as well as the related containment measures and government-enforced lockdowns. This has resulted in major volume losses across segments including chemicals, materials, surface technologies, and industrial solutions, as well as significant price declines in upstream chemicals. With higher pension obligations due to the lower discount rate and the delay in closing the disposal of the pigment business to early next year (beneficial for 2021 metrics), we now expect our adjusted funds from operations (FFO) to debt to decline to below 25% for 2020 from 26.2% in 2019. This is significantly below our expectation of at...

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