Research Update: German Chemical Company BASF SE Downgraded To 'A-/A-2' From 'A/A-1' On Weakening Credit Metrics; Outlook Stable

We believe softening demand amid a global economic slowdown is pushing down BASF SE's volumes and margins, especially in the upstream businesses. We anticipate BASF's leverage will increase in 2023 and remain elevated in 2024 due to peaking capital expenditure (capex), with S&P Global Ratings-adjusted funds from operations (FFO) to debt moving below the minimum of 35% we expect for an 'A' rating. Moreover, relatively high energy prices, lower growth prospects, and increasing carbon dioxide (CO2) costs in Europe have resulted in competitive disadvantages for BASF's European production assets. We therefore lowered our long- and short-term issuer credit ratings on BASF to 'A-/A-2' from 'A/A-1' and issue ratings on its debt to 'A-' from 'A'. The stable outlook reflects that

...- We believe softening demand amid a global economic slowdown is pushing down BASF SE's volumes and margins, especially in the upstream businesses. - We anticipate BASF's leverage will increase in 2023 and remain elevated in 2024 due to peaking capital expenditure (capex), with S&P Global Ratings-adjusted funds from operations (FFO) to debt moving below the minimum of 35% we expect for an 'A' rating. - Moreover, relatively high energy prices, lower growth prospects, and increasing carbon dioxide (CO2) costs in Europe have resulted in competitive disadvantages for BASF's European production assets. - We therefore lowered our long- and short-term issuer credit ratings on BASF to 'A-/A-2' from 'A/A-1' and issue ratings on its debt to 'A-' from 'A'. - The stable outlook reflects that we expect stabilizing market conditions--combined with continuous efforts to reduce costs, unwind working capital, and maintain strict capex control--should help BASF maintain adjusted FFO to debt above 30% in...

Research Update