BASF Studies Splitting Wintershall Into Russia, Other Assets

(Bloomberg) -- BASF SE is exploring a plan to offload energy assets in Russia belonging to its Wintershall Dea AG unit to its Russian billionaire joint venture partner, according to people familiar with the matter.

The German chemical giant has weighed options that could see the Russian assets and operations of Wintershall transferred to LetterOne, an investment firm owned by sanctioned Russian billionaire Mikhail Fridman, the people said. A split would allow BASF to revive plans for an initial public offering of the remaining business, a move that LetterOne has so far sought to block.

BASF declined to comment. A spokesman for LetterOne said the company has had no discussions with its partner and has no plans to take on Russian assets.

“Wintershall with the Russian business is obviously toxic and impossible to IPO or even sell to a strategic buyer,” said Oliver Wojahn, analyst at Astler Research, adding that BASF's association with a sanctioned person was a reputational burden. “So the asset swap would solve two problems for BASF.”

The shares rose 3.6% at 12:57 p.m. in Frankfurt trading, paring declines of around 20% since the start of the year.

BASF last month said it had given up on an IPO following Russia's invasion of Ukraine. The company had planned the listing to exit oil and gas businesses. It holds a 67% stake in Wintershall, one of Europe's leading oil and gas exploration companies with 2,400 direct employees, and LetterOne owns the rest. Last year, just over 11% of Wintershall's revenue out of a total 7.8 billion euros ($8.2 billion) came from Russia.

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BASF is in the initial phases of examining the asset swap, which so far hasn't been discussed with LetterOne, the people said. While the idea hasn't progressed far, it highlights the limited options companies have in exiting significant business ties in Russia. Renault SA, the most exposed major carmaker in the country, may effectively nationalize its majority stake in Russia's AvtoVaz by selling the asset to a state-run automobile research institute for a ruble, or about one U.S. cent.

BASF executives said a plan to split Wintershall is likely to be opposed by Fridman's LetterOne. Fridman has spoken out against the war in Ukraine and is unlikely to be willing to take on more assets in the country, one of the people said.

Still, the deal might make financial sense for Fridman or LetterOne shareholders. David Varga, analyst at Metzler bank estimates the Russian businesses represent around 50% of Wintershall's value, significantly more than LetterOne's 27.3% ownership share.

A spokesman for LetterOne said Fridman has been removed from influence at the company in the wake of sanctions, adding his assets are frozen and dividends paid to charity.

Last month, Wintershall wrote off 1.5 billion euros in relation to Russian assets. The bulk of the impairment -- 1 billion euros -- is linked to its financing of the Nord Stream 2 natural gas project that has been put on hold due to the war. The remainder is connected to “risk-based outcomes” from its remaining operations in Russia.

The firm produces some 670,000 barrels of oil equivalent a day from a range of assets including the North Sea, Argentina and Algeria. The company, which merged in 2019, is also involved in exploration in Mexico where it holds a stake in the large Zama offshore development.