ThaiBev stands to benefit from F&N spin-off plan, Moody's says

F&N, which is 28.61 per cent owned by ThaiBev and 61.67 per cent by TCC Assets, will separate its real-estate division from its core food-and-beverage business through a listing in November or December.

Moody’s believes the spin-off will facilitate moves by ThaiBev to leverage revenue and cost synergies better with F&N’s food-and-beverage business, while the latter – in the absence of its property business – can better focus on expanding.

Moody’s further believes that the proposed spin-off shows that TCC Assets seeks to integrate more closely, where possible, the operations of ThaiBev and F&N.

“We believe the latest development shows that ThaiBev and TCC Assets seek to maximise synergies between ThaiBev and F&N’s core businesses, including leveraging each other’s regional distribution networks, product development capabilities and portfolio of leading beverage brands,” Annalisa DiChiara, a Moody’s senior analyst, said yesterday.

“Given that TCC Assets has notified F&N that it will vote in favour of the spin-off and in view of senior-management restructuring at F&N for the purposes of a more dedicated focus on growing the food-and-beverage business, we expect TCC Assets to continue supporting additional restructuring to most efficiently integrate the two companies’ food-and-beverage businesses. This may even include their full consolidation over time,” she said.

“Previously, we raised concerns over the lack of clarity in regard to shareholder intentions. But now we see that the aim is to better align ThaiBev and F&N in their growth strategies and business opportunities. And while we cannot at this stage quantify the benefits, we believe that ThaiBev will strengthen its competitive and financial positions over time.” 

Assuming all regulatory and shareholder approvals are obtained, the listing of F&N’s property unit, Frasers Centrepoint, will be achieved via a dividend in-specie distribution of FCL shares to F&N shareholders. As a result, ThaiBev will receive, at no cost, two FCL shares for every one F&N share it owns.

After the completion of the proposed transaction, F&N will no longer have any interest in FCL, leaving the Asian conglomerate with its food-and-beverage business (84 per cent of sales) and printing and publishing businesses (16 per cent of sales). 

F&N and FCL will trade separately on the Singapore Exchange upon the listing of FCL.

On Wednesday, ThaiBev also said it was appointing a financial adviser to conduct a strategic review to consider various options, including the viability of retaining or exchanging its interests in the F&N group and other possible ownership structures.

ThaiBev is the leading beverage producer in Thailand with four business lines – spirits, beer, non-alcoholic beverages and food. ThaiBev was listed on the Singapore Exchange in 2006.

Last week Moody’s said ThaiBev’s use of the 1.35 billion Singapore dollars (Bt33.7 billion) it received from capital reduction by F&N on July 31 to pay down its long-term debt of S$1 billion and short-term debt of S$353 million early this month was credit-positive for ThaiBev.

The transaction has allowed the firm to lower its leverage significantly, particularly after its weak earnings performance in the first half. Pro forma for the debt reduction, the company’s adjusted debt to earnings before interest, taxes, depreciation and amortisation declined from 4.2 times as of June 30 to 2.8 times, a level that supports its current “Baa3” rating.

In May, F&N’s board proposed a capital reduction for a total aggregated amount of S$4.73 billion, to be funded via internal cash and equivalents. The distribution accounts for around 85 per cent of the gross sale proceeds of F&N’s interests – worth S$5.59 billion - in Asia Pacific Brewery. Based on ThaiBev’s 28.61-per-cent stake in F&N, it received proceeds of S$1.353 billion.

ThaiBev had incurred more than S$3 billion in debt last year to assume its stake in F&N. Consequently, its leverage, as measured by adjusted debt/EBITDA (earnings before interest, taxes, depreciation and amortisation), had risen to more than 4 times from less than 1 time historically.