ThaiBev's acquisition of F&N puts rating under review: Moody's
Thai Beverage Plc's "Baa2" rating remains on review for downgrade after completing its acquisition of an approximately 22 per cent stake in Fraser & Neave (F&N), said Moody's Investors Service.
"At this stage, we expect to resolve our rating action during the three-month rating review period pending further clarity on the transaction, and particularly the extent to which current competing bids for Asia Pacific Breweries (APB), in which F&N has a 39.7 per cent stake, are resolved," said Annalisa Di Chiara, a Moody's vice president and senior analyst.
F&N and Heineken control a 64.8 per cent stake in APB, the maker of Tiger Beer, through a 50/50 joint venture, Asia Pacific Investment Private (APIPL), a 50-50 joint venture between Heineken and F&N. F&N holds an additional 7.3 per cent direct stake in APB, taking its total stake to 39.7 per cent, and Heineken a 9.3 per cent direct stake, taking its total stake in APB to 41.7 per cent. The credit rating was under review when ThaiBev’s wholly-owned subsidiary International Beverage Holdings, submitted a binding offer to acquire the 22 per cent stake in F&N for 2.8 billion Singapore dollar.
However, shortly after the announcement, Kindest Place, which is owned by the son-in law of Charoen Sirivadhanabhakdi, Thai Bev's director and Controlling shareholder, made an unsolicited bid to purchase F&N's direct 7.3 per cent stake in APB for SGD55 per share. The offer will expire on August 24.
"Given the uncertainty regarding F&N's ultimate shareholding in APB and any financial implications if APB is sold, in whole or in part, it is difficult to determine the ultimate credit impact on Thai Bev's business and financial profile at this stage," said Di Chiara.
"Our ratings will also incorporate our view of the management's risk appetite as evidenced by this acquisition," she added.
Factors that Moody's will take into consideration when evaluating the ultimate rating impact of the acquisition include, but are not limited to
(1) the strategic rationale of the acquisition and impact on Thai Bev's growth strategy; (2) the acquisition's impact on the company's profitability and cash flow generation; (3) the final impact on its credit metrics and financial flexibility; (4) F&N's final shareholding in APB (5) its financial policies and risk tolerance levels, and (6) the company's longer-term funding plan and impact on its liquidity.
As liquidity is an important consideration in Thai Bev's rating, Moody's will also examine the various options to be employed by the company to take out and extend the bridge financing required to fund the acquisition.
Based on an acquisition cost of S$2.8 billion and the company's 12-month trailing EBITDA at June 30, 2012, leverage - as measured by debt/EBITDA - would rise to around 3.5 times when fully debt-funded. Such a level is materially higher than the company's historical levels, which have been in the 1-time range, putting pressure on the company's ratings and limiting its financial flexibility.
However, the credit implications go well beyond the impact on Thai Bev's financial metrics. The strategic benefits and future business opportunities remain uncertain given the battle for control over one of F&N's key assets, namely APB.
While Thai Bev, via F&N and then through Asia Pacific Investment Private Ltd (APIPL), a 50-50 joint venture between Heineken and F&N, might only have a minority interest in APB, Moody's believes that access to APB's distribution network and brand portfolio is essential for the company to capitalise on any international expansion opportunities for its alcohol business. For the non-alcohol business, Thai Bev can utilise the strength of F&N's distribution network particularly in ASEAN.
Thai Beverage is the leading producer of beer and spirits in Thailand. The company has a large distribution network of 93 sales offices, covering 400,000 point of sales over the country.
