Problems with business in Russia: uncertain times for BASF

Status: 04/29/2022 12:20 p.m

The chemical industry fears the further consequences of the Ukraine war in particular, because a complete energy embargo against Russia is still in the air. BASF is already suffering severely from the effects.

By Jan Plate, ARD Stock Exchange Studio

The world’s largest chemical company, BASF, is sticking to its annual targets despite the economic consequences of the Ukraine war. However, the market environment remains characterized by an exceptionally high level of uncertainty, according to the group. BASF bears a heavy burden on Russia.

Give in to temptation

Russia annexed Crimea eight years ago. Because of the tensions with Ukraine, the chemical company had canceled the planned sale of German gas storage facilities to the Russian Gazprom. But in the end the managers succumbed to the temptation: German gas storage facilities – including Europe’s largest natural gas storage facility in Rehden in Lower Saxony – went to Gazprom.

As part of the deal, BASF subsidiary Wintershall Dea received production rights for natural gas in Siberia. The Federal Ministry of Economics at the time saw “no effects on the security of supply in Germany”. A disruption in Russian natural gas supplies was considered unlikely.

Worse than the DAX

The current attack by Russia on Ukraine shows how wrong politicians and the companies concerned were. Vladimir Putin was grossly underestimated – with far-reaching consequences for BASF as well. This means that Wintershall Dea’s planned IPO is a long way off.

According to experts, under normal conditions around ten billion euros could have come in. This is not the only reason why BASF shares have lost almost 20 percent since the beginning of the year. It therefore performs significantly worse than the German stock index DAX. In the past five years it has fallen by almost 45 percent.

Subsidiaries in a dilemma

At the subsidiary Wintershall Dea, the figures for the first quarter of 2022 have just shown that write-downs on the Russian business amount to 1.5 billion euros. This is also due to the commitment to the controversial Baltic Sea pipeline Nord Stream 2 and brings deep red numbers.

It has been heard that new projects in Russia will not be started. However, the company from Kassel in Hesse wants to maintain its participation in existing projects in Russia. In the event of a withdrawal, billions would fall to the Russian state, according to Wintershall Dea.

And what about the mother BASF? Some specialty chemicals divisions are showing weaknesses, but things are generally going well so far. Revenue rose 19 percent in the first quarter thanks to higher prices. The DAX group has confirmed its targets for this year. For 2022, the company continues to expect a decline in sales to 74 billion to 77 billion euros, after sales of almost 79 billion last year.

Warnings from corporate headquarters

But everything stands and falls with the further progress of the war and the political reactions to it. Especially when politicians – in Berlin and Brussels – decide not just an oil embargo, but a complete energy embargo against Russia.

BASF is one of the loudest admonishers with regard to the risks of such an embargo – also with reference to the fact that almost the entire industry is dependent on chemicals, on raw materials. That could bring the German economy into the worst crisis since the end of the Second World War – according to CEO Brudermüller.

Because of the war, BASF plans to shut down most of its business in Russia and Belarus by early July 2022. But the Russian burden with the subsidiary Wintershall Dea should continue to create problems for the time being.

BASF bears the burden of Russia

Jan Plate, HR, 4/29/2022 11:06 am

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