Fitch revises Thai Beverage outlook to negative from stable

Thai baht notesThai baht notes

Fitch Ratings on Wednesday revised Thai Beverage’s ratings outlook to negative from stable, amid continued weak domestic demand.

“The negative outlook reflects risks to the pace of the company’s deleveraging, which has been slower than our previous forecasts due to weak domestic demand for alcoholic beverages in the fiscal year ended September 2018 (FY18) following a series of acquisitions in the first quarter of 2018 that raised leverage,” Fitch said in a statement on Wednesday.

Fitch said it expected ThaiBev’s net leverage, or funds from operations (FFO) to adjusted net debt, to remain high at around 4.5 to 5.5 times in fiscal 2019 to 2021, compared with the ratings agency’s previous forecast of 4.0 times by 2021. It noted that was well off the peak of 8.3 times at the end of 2018.

That was after the acquisition of Saigon Beer-Alcohol Beverage Corp. (Sabeco) in Vietnam, the Grand Royal Group (GRG) in Myanmar, and 252 KFC outlets in Thailand, Fitch said.

“The company appears to be mainly focused on improving operating cash flows at Sabeco to reduce its leverage, with no other deleveraging plans announced,” Fitch said.

“ThaiBev may be able to deleverage faster, reducing its net leverage to below 4.0 times by FY21, the level at which Fitch would consider negative rating action, if its newly acquired businesses improve their operating efficiencies or it undertakes capital management or asset restructuring,” it added.

Fitch said it expected ThaiBev to see a gradual recovery in its earnings before interest, tax, depreciation and amortization (EBITDA) margins, amid broad-based improvement across the key product segments and end-markets.

It estimated net revenue excluding excise tax for the Thai businesses would rise by about 10-12 percent in fiscal 2019, it said.

The ratings agency affirmed Thai Beverage’s long-term foreign-currency default rating at BBB-minus, its national long-term rating at AA(tha), and its senior unsecured rating at AA(tha).

“ThaiBev’s ratings reflect its strong market position in spirits and its leading share of beer sales in its key markets of Thailand, Vietnam and Myanmar, which are counterbalanced by its narrow geographic diversity and smaller operating scale compared with rating peers,” Fitch said.


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