By Christopher Alessi And Sarah Sloat
FRANKFURT-- BASF SE's decision to call off a long-planned
asset-swap deal with Russia's OAO Gazprom wasn't the result of
political pressure from the German government, the German Economics
Ministry said Friday.
BASF, the world's largest chemical company by revenue, announced
Thursday it had canceled the deal with Russian state gas group
Gazprom amid mounting political tensions between Russia and the
West.
BASF, through its wholly-owned oil and gas unit, Wintershall AG,
had planned to divest itself of its gas trading and storage
operations through an asset exchange with Gazprom. The trade,
announced in November 2012, would have given Wintershall access to
natural-gas fields in Siberia.
"This is a corporate process. From the German side, there was no
political influence over the deal," said Julia Modes, a
spokesperson for the ministry. "For us, it is only important that
the gas supply or the security of supply is not threatened, and we
don't see that."
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.
"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.
Gazprom's European operations have also been squeezed. Russian
President Vladimir Putin announced in early December that Gazprom
would no longer pursue its South Stream pipeline project, which
would have been used to supply natural gas to Europe via Bulgaria.
EU leaders had suspended work on the pipeline amid the worsening
crisis in Ukraine and growing concerns that it could make Russia
the dominant supplier of natural gas in Europe.
The asset swap between BASF and Gazprom had been delayed for
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
by the end of 2014. In October, Mr. Bock called the asset swap a
"good and reasonable decision," suggesting the transaction had only
been held up 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, Gazprom would have acquired BASF's share in
that business. The Russian company would have also received a 50%
share in BASF's 100%-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, Germany's largest 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.
Mr. 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.
Andrea Thomas in Berlin contributed to this article.
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