It may take more than bumper natural-gas prices to salvage BASF SE’s plan to IPO its exploration-and-production joint venture, Wintershall Dea.
Both the spot market and the shorter end of the forward price curve have recovered considerably, but that’s yet to be sufficiently reflected in Wintershall Dea’s valuation. For a second time, shareholders BASF and LetterOne are delaying the planned listing.
The move underscores how difficult it will be to attract investors into a traditional oil-and-gas player, especially one with limited exposure to renewable energy and a less prominent ESG strategy, said Jaideep Pandya, an analyst at Onfield Research. Some other energy majors are investing billions of dollars in renewables like wind and solar-power in a bid to clean up their image.
“Strategically, BASF remains fully committed to divest its share,” according to CFO Hans-Ulrich Engel says, it’s just market valuations of oil and gas companies “for various reasons” are below levels that would tempt Wintershall’s owners to go ahead with the IPO.
Given BASF wasn’t expected to offload Wintershall in one sweep anyway, it’s “something of a surprise” they went for another delay, according to UBS analyst Andrew Stott. “We expected the initial move to build a basis for further share sales at potentially higher multiples, especially if natural gas prices remained at healthy levels during 2022 and beyond,” he said in a note.
The problems likely extend beyond energy pricing to investors’ overall appetite in the sector as a whole. BASF may have to think of alternative routes to exit its 72.7% stake in Wintershall, and that could include selling to a private equity firm, Pandya said.
At a time when BASF is investing in its own transformation toward more sustainable chemistry, precious funds are tied up in Wintershall. The holding could be worth EU6.4b, based on the kind of multiple applied to Gazprom, according to UBS’s Stott.
On the plus side is the fact that, even though Wintershall is hanging around longer than planned, BASF’s ESG ratings won’t be impacted. Separating the oil and gas business and merging it with DEA Deutsche Erdoel AG just over a year ago effectively ring-fenced its exposure to the full gamut of drilling, production and transportation.
“This asset is not super sexy,” Pandya said. “It confirms the view that an IPO will be difficult to do. They may have to go for a soft options.”