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Announcement:

Moody's: Thai Bev's review continues after acquiring 22% F&N stake

15 Aug 2012

Hong Kong, August 15, 2012 -- Moody's Investors Service says Thai Beverage Public Company Limited's (Thai Bev) Baa2 rating remains on review for downgrade after completing its acquisition of an approximately 22% stake in Fraser & Neave (F&N, unrated) by International Beverage Holdings Limited, a wholly owned subsidiary of Thai Bev, on 14 August 2012.

Moody's placed Thai Bev's Baa2 issuer rating under review for downgrade on 19 July when the company submitted a binding offer to acquire an approximately 22% stake in F&N from OCBC, GEH and Lee Rubber for SGD2.8 billion.

"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% stake, are resolved," says Annalisa Di Chiara, a Moody's Vice President and Senior Analyst.

F&N and Heineken (Baa1/stable) control a 64.8% stake in APB, the maker of Tiger Beer, through a 50/50 joint venture, APIPL.

F&N holds an additional 7.3% direct stake in APB, taking its total stake to 39.7%, and Heineken a 9.3% direct stake, taking its total stake in APB to 41.7% .

On 6 August, F&N's board announced that it had agreed to recommend to its shareholders to accept Heineken's bid to buy F&N's 39.7% stake in APB for SGD4.2 billion, or SGD50 per share.

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% stake in APB for SGD55 per share.

According to the announcement by the Singapore Exchange, the offer will expire on 24 August.

"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," says Di Chiara.

"Our ratings will also incorporate our view of the management's risk appetite as evidenced by this acquisition," she adds.

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 SGD2.8 billion and the company's 12-month trailing EBITDA at 30 June 2012, leverage -- as measured by debt/EBITDA -- would rise to around 3.5x when fully debt-funded.

Such a level is materially higher than the company's historical levels, which have been in the 1.0x 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 APIPL, 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 capitalize on any international expansion opportunities for its alcohol business. For the non-alcohol business, Thai Bev can utilize the strength of F&N's distribution network particularly in ASEAN.

Prior to the announcement of the acquisition, Thai Bev's moderate leverage level (under 1x adjusted debt/EBITDA at FYE2011) had provided flexibility for acquisitions within the company's Baa2 rating. In this context, downward financial trigger levels for the rating include adjusted debt/EBITDA above 2.7x, FFO/debt below 30%, and EBITA margins below 25%.

The principal methodology used in this rating was Global Alcoholic Beverage Rating Methodology published in September 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Thai Beverage Public Company Limited 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. Thai Bev was listed on the Singapore Exchange in 2006.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

Annalisa Di Chiara
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Philipp L. Lotter
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's: Thai Bev's review continues after acquiring 22% F&N stake
No Related Data.
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