BASF ended the third quarter of 2012 with EUR 1.8 billion of cash and a $12.5 billion commercial paper program backed with an additional $6 billion revolver, versus EUR 8.4 billion of long-term debt, EUR 4.3 billion of short-term debt, and some underfunded pension (the company started the year with EUR 3 billion in pension liabilities). The firm generated EUR 13 billion EBITDA for the trailing 12 months, putting interest coverage at almost 20 times and gross adjusted debt leverage at about 1.2 times, slightly below the level reached last year due to weak European and Asian economic growth.
BASF is the largest chemical conglomerate in the world. Over the years, it has consciously diversified its portfolio mix from petrochemical products to specialty products that are generally less volatile.
However, the shift increased BASF’s debt load, as the firm largely relied on debt for financing. BASF serves a wide swath of industries– including oil and gas, auto, construction, personal care, and agriculture–and also operates an energy exploration, production, and distribution business.
The oil and gas operations serve as a partial built-in hedge in its feedstock, a key differentiator versus other large chemical companies. When oil prices increase, BASF, which relies on the naphtha chain derived from oil, can partially recoup the cost inflation through energy sales. A growing worldwide supply of petrochemical production from ethane (derived from natural gas) could damp or at least alter this edge, which may have negative credit implications.
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