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CREDIT COMMENTARY
Jul 25, 2013
A mixed day for chemicals
Earnings season went into overdrive on Thursday, with the chemicals sector in focus on both sides of the Atlantic.
German group BASF, the world's biggest chemicals company by revenue, posted profits that missed expectations and warned that it will be tough to meet its full-year earnings target. Demand weakened for its products and the firm highlighted the volatile economic environment as an ongoing problem.
But the damage done to its credit standing was limited - its CDS widened just 2bps to 48bps. BASF has a strong balance sheet and its implied rating of 'AA' is superior to its single 'A' average rating, according to Markit data. Net debt increased since the start of the year, but this was due to BASF taking advantage of low rates and its credibility among investors.
Over in the US, Dow Chemical reported more upbeat results than BASF. The company's adjusted earnings per share of 64 cents came in just ahead of the 63 cents consensus estimate thanks to improving margins. Dow said it is well positioned to earnings improvement in the second half of the year.
Dow's credit profile is not as strong as BASF - it is rated 'BBB', but, like BASF, it trades with a better implied rating, in this case 'A'. Its CDS were steady at 88bps, and have rallied 65bps over the past year.
General Motors and Rolls Royce were among the many blue chips to post solid results today. But the credit market still went in to retreat, with the Markit iTraxx Europe widening by 3bps to 103bps and the Markit CDX.NA.IG giving back 2bps to trade at 78.5bps.
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