On 12 September 2017, Scope affirmed the corporate credit rating of A for Germany-based chemicals company BASF SE and its financing subsidiary BASF Finance Europe N.V. Senior unsecured debt issued by either BASF SE or BASF Finance Europe N.V. is rated A. The short-term rating is S-1. The Outlooks are Stable.

Following the release of the final numbers for 2017, Scope has updated its forecasts for 2018F and provided Scope-adjusted figures for 2017. The figures reported for 2017 were slightly better than the agency’s forecast with Scope-adjusted debt/EBITDA of 1.3x compared to Scope’s estimate of 1.4x, primarily due a strong fourth quarter result. Free operating cash flow (as defined by BASF) of EUR 4.8bn was perfectly in line with Scope’s forecast.

Going into 2018, Scope has slightly adjusted the key forecast parameters affecting its financial risk profile assessment and the agency’s base case still suggests a slight weakening of credit metrics in 2018F. Effectively, however, Scope thinks that BASF’s leverage will change only moderately, keeping in mind that earnings and cash flows from announced acquisitions (Bayer’s seed and non-selective herbicide business and Solvay’s global polyamide) will only be consolidated pro-rata upon closing of the respective transaction. Scope’s assessment of the two bolt-on acquisitions announced last year is provided in the agency’s BASF SE Corporate and Instrument Rating from October 2017.

Scope’s forecast for 2018F includes a minor earnings (EBITDA) contribution from both transactions. At the same time, the agency has included the cash consideration of EUR 7.5bn for both transactions in the calculation of Scope-adjusted debt. Integration risks for both assets, notably regarding the Bayer deal (EUR 5.9bn), appear manageable and low in Scope’s view. The Bayer transaction is structured as an asset deal and Scope expects a disproportionate effect on EBIT after closing. Overall, the rating agency’s base case for 2018F is roughly in line with BASF’s public guidance. For 2018F, BASF expects a “slight decline” in reported EBIT, suggesting a decrease in a magnitude of 1%-10%. This compares with Scope’s updated forecast of EUR 8.3bn (versus EUR 8.5bn reported for 2017).

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