By Christopher Alessi And Sarah Sloat
FRANKFURT--Germany's BASF SE, the world's largest chemical
company by revenue, and Russia's OAO Gazprom have called off an
asset-swap deal amid mounting political tensions between Russia and
the West, BASF said Thursday.
The collapse of the deal means BASF now expects an only
"slightly higher" increase in earnings before interest and taxes
for 2014, rather than the "considerable rise" the company
previously forecast, as it won't collect expected income from the
transaction.
BASF had planned to divest itself of the gas trading and storage
business of its wholly owned oil and gas subsidiary Wintershall AG
as part of an asset exchange with Russian state gas group Gazprom
that was scheduled to be completed by the end of this year. The
trade, announced in November 2012, would have given Wintershall
access to natural-gas fields in Siberia.
"Due to the current difficult political environment, BASF and
Gazprom have decided not to complete the asset swap planned for the
end of the year," a spokeswoman for BASF said.
Relations between Russia and the West have been increasingly
strained since the Russian annexation of Ukraine's Crimea region
last spring. Biting European and U.S. sanctions have squeezed the
Russian economy and further isolated Moscow from the international
community in recent months, while German companies like BASF have
come under pressure from the German government to limit business
ties with Russia.
The asset swap between BASF and Gazprom had been delayed for a
roughly a year, but BASF Chief Executive Kurt Bock said as recently
as early December that the deal was still on track to be completed.
In October, Mr. Bock called the asset swap a "good and reasonable
decision," suggesting the transaction had only been delayed by
technical issues, rather than political concerns.
BASF's natural-gas trading business, largely housed under its
Wingas GmbH division, will continue to operate as a 50-50 joint
venture between Gazprom and Wintershall, BASF said.
As part of the swap, BASF would have divested itself of its
share of that business to Gazprom. Gazprom would also have received
a 50% share in BASF's wholly owned North Sea oil exploration and
production unit Wintershall Noordzee. In return, Gazprom and
Wintershall planned to jointly develop two blocks of the Urengoi
natural gas field in western Siberia.
The combined activities of BASF's planned divestitures
contributed around EUR12 billion ($15 billion) to sales and about
EUR500 million to earnings before interest, taxes, depreciation and
amortization in 2013, the company said. BASF said it would also
book expenses resulting from the canceled deal of EUR113 million
for 2013 and EUR211 million for 2014.
Wintershall, a major German crude oil and natural-gas producer,
has been a "big strength of BASF," said Mike Smith, a vice
president in the chemicals division of consulting firm IHS Global
and a former BASF employee. For a company that produces an array of
chemicals, having an oil and gas division like Wintershall is a
"natural hedge against changes in energy prices," Mr. Smith
said.
BASF's chemical business has been hurt by weakening demand for
chemicals in Europe and a slowing global economy, forcing the
company in October to lower its guidance for 2015. At that time,
Mr. Bock cited the situation in Ukraine as one of the biggest
global challenges facing the company, saying it had seen a 25%
decline in its business in Ukraine and a negative impact on
operations in Russia.
Russian President Vladimir Putin acknowledged Thursday during an
annual news conference that Western sanctions were hurting the
country's economy, while blaming Western powers for a growing
divide between Russia and Europe.
Mr. Putin also cited external economic pressures, including a
fall in global oil prices, that have caused the Russian ruble to
collapse over the past week. The ruble has dropped almost 50%
against the dollar this year.
Write to Christopher Alessi at christopher.alessi@wsj.com and
Sarah Sloat at sarah.sloat@wsj.com
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