BASF takes huge writedown as Wintershall Dea exits Russia

  • Keeping Russian business "not tenable" -Wintershall Dea
  • BASF unveils 7.3 billion euro non-cash impairment for 2022
  • BASF flags 1.38 bln euro net loss in 2022

BERLIN/FRANKFURT, Jan 18 (Reuters) - BASF (BASFn.DE) will take a 7.3 billion euro ($7.9 billion) writedown as its Wintershall Dea (WINT.UL) energy business pulls out of Russia, the German chemicals giant said, triggering a net loss for 2022.

Wintershall Dea has deep ties to Russia, including stakes in the Nord Stream gas pipelines and joint ventures with Russia's Gazprom (GAZP.MM).

Russian billionaire Mikhail Fridman's investment firm LetterOne owns a 27.3% stake in it.

"Continuing to operate in Russia is not tenable," Wintershall Dea CEO Mario Mehren said.

He added that limitations imposed by Russia on Western-owned assets had made it impossible to operate properly "and resulted in an economic expropriation of the joint ventures in Russia".

The company specified that Russian presidential decrees had retroactively slashed the prices at which joint ventures can sell their oil and gas to Kremlin-controlled Gazprom.

"Russia's war of aggression in Ukraine is incompatible with our values and has destroyed cooperation between Russia and Europe," Mehren said in a statement late on Tuesday.

It was not immediately clear what would happen to the assets left behind.

A LetterOne spokesperson said the investor was supportive of BASF's position but declined to comment further.

Other oil firms had been quicker to face up to losing Russian assets. BP (BP.L) last May took a $24 billion writedown from its exit there, while TotalEnergies (TTEF.PA) in October took a fresh impairment of $3.1 billion on top of earlier provisions of $7.6 billion.

BASF's write-down comes about a month before the anniversary of Moscow's invasion of Ukraine, which triggered Western sanctions and an exodus of Western companies from Russia.

Shares in BASF were down 0.5% at 1027 GMT, having fallen as much as 2.2%.

An impairment charge was expected but "the magnitude is nevertheless breathtaking", said Markus Mayer, an analyst at brokerage Baader Helvea.

The energy company had previously said it was trying to legally separate its Russian business.

According to BASF's statement, 5.4 billion euros of the writedown for 2022 were new charges to be taken in the fourth quarter. Jefferies analysts wrote in a research note that a recent decline in European natural gas prices would temper market concerns over the Russia burden, offering a "significant potential earnings tailwind into 2023".

RUSSIAN VENTURES

Wintershall Dea said it had to write off Russian joint venture stakes and Russian-related activities, including its 15.5% holding in the damaged Gazprom-led Nord Stream pipeline and the WIGA Transport joint venture with Sefe, formerly known as Gazprom Germania.

As a result, BASF flagged a 1.38 billion euro net loss for 2022, according to preliminary results also published on Tuesday, after a 5.52 billion profit in 2021.

Analysts had on average expected net profit of 4.77 billion euros, according to a company-provided consensus.

Wintershall Dea's Russian activities include a 35% stake in the Yuzhno-Russkoye gas field alongside Gazprom with 40% and Austria's OMV (OMVV.VI) with 25%.

Wintershall Dea also co-owns two Achimov natural gas production projects in Siberia, including a 50% stake in the Achimgaz joint venture with Gazprom and a 25% holding in the Achim Development venture.

BASF said last year that the oil and gas company's exposure in Russia was the reason for it to hold off on plans to take Wintershall Dea public.

The chemicals company on Wednesday reiterated its intention in principle to sell its stake in a public share offering but such a transcation was not on the agenda for now because of the war.

LetterOne had earlier voiced opposition to the initial public offering, causing a public rift with its German partner a year ago.

BASF in its 2022 preliminary results said it expected a 15% fall in earnings before interest and tax (EBIT) to 6.55 billion euros, below the 6.84 billion expected by analysts, and an 11% rise in sales to 87.32 billion euros on higher prices and currency effects.

BASF is scheduled to publish its final 2022 results on Feb. 24.

($1 = 0.9270 euros)

Reporting by Victoria Waldersee, Christoph Steitz and Ludwig Burger; editing by Josie Kao, Jason Neely, Emelia Sithole-Matarise and Louise Heavens

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