ThaiBev's rating lowered on higher debt

 

The rating agency expects Thai Bev's higher debt and lower cash flow adequacy to weaken its financial risk profile over the next 24 months, following the

completion of the company's debt-funded acquisition of a stake in F&N. It does not expect the business risk profile to improve significantly during this time.

Thai Bev just completed the 3.3 billion Singapore dollar acquisition of a 28.7 per cent stake in Singapore-based conglomerate Fraser & Neave

Ltd. (F&N), in conjunction with related party TCC Assets. S&P projects that the company's ratio of funds from operations (FFO) to total debt to remain 20-25 per cent in 2013 and 2014. In its base-case scenario, the ratio of total debt to EBITDA would be at about 3.8 times in 2013, reducing to about 3.2 times in 2014, though included in the EBITDA is annual dividend of Bt1-Bt1.5 billion from F&N.   

"The F&N acquisition marks a shift in Thai Bev's financial policies, which we now view as aggressive. We previously viewed Thai Bev's financial policy as

moderate because its ratio of total debt to EBITDA was less than 1 time (until 2011). Nevertheless, we understand that Thai Bev intends to restore its financial profile over the next two years. We do not expect the company to make any acquisitions until its credit measures improve toward levels consistent with an "intermediate" financial risk profile. Our rating on Thai Bev does not capture any special dividend payment from the large cash balance of about S$7.4 billion that F&N holds. This is because the extent and timing of this dividend is not known."

 

S&P also painted the negative outlook for ThaiBev, reflecting the risk that management may fail to strengthen the company's financial risk profile, and the risk associated with the likely weakened financial risk profile of Thai Bev's parent TCC Group.