Published on 07 May 2013
RAM Ratings has reaffirmed the
respective long- and short-term ratings of AA1(s) and P1(s) for F&N Capital
Sdn Bhd’s (“F&N Capital”) RM1 billion Commercial Papers/Medium-Term Notes
Programme (2008/2015) (“CP/MTN”); the long-term rating carries a stable
outlook. F&N Capital is a treasury company that is wholly-owned by Fraser
& Neave Holdings Bhd (“F&N Holdings” or “the Group”). The CP/MTN is
backed by a full, unconditional and irrevocable corporate guarantee from
F&N Holdings. As such, the ratings are based on the credit profile of the
Group.
The ratings predominantly
reflect F&N Holdings’ strong leading position in several food-and-beverage
(“F&B”) segments and its solid financial profile. F&N Holdings remains a
leader in the overall ready-to-drink market in Malaysia. Likewise, the Group
has retained its leadership of the Malaysian and Thai dairy-products markets.
Its financial profile has also stayed sturdy despite the loss of its bottling
licence from The Coca-Cola Company (“TCCC”) and operational disruptions as a
result of severe floods in Thailand. As at end-1Q FY Sep 2013, the Group
carried a heavier debt load as its cashflow had been affected by the 2
aforesaid operational setbacks which had necessitated more debt to fund
increased working capital requirements at that time. Consequently, F&N
Holdings’ gearing ratio had risen from 0.11 to 0.25 times while its funds from
operations debt cover (“FFODC”) had eased from 2.15 to 0.89 times as at
end-December 2012. Nonetheless, these levels are still considered robust.
Going forward, the Group’s
financial profile is expected to remain solid. Consistent with its plans over
the last 2 years, F&N Holdings has allocated some RM500 million of
investment outlay for potential acquisitions and a corresponding debt drawdown
of the same amount. Even after taking these into account, the Group’s financial
metrics are envisaged to be sturdy; its balance sheet is expected to remain
solid, with adjusted gearing ratios of 0.3-0.5 times over the next 3 years and
a corresponding adjusted FFODC of around 0.4-0.6 times.
These strengths are, however,
moderated by the more competitive F&B landscape. Apart from the emergence
of TCCC as a competitor, the situation is exacerbated by the introduction of
new TCCC products and those of other players. Likewise, competition has become
increasingly keener in the dairy-products market amid the proliferation of
value-for-money brands. F&N Holdings is also vulnerable to fluctuating
raw-material and packaging costs, as well as the risk of non-renewal of
licences for brands not owned by the Group or its parent, Fraser and Neave
Limited (“F&N Limited”).
We are also cautious of
uncertainties arising from a change in F&N Limited’s shareholding structure
following the emergence of Thai billionaire Charoen Sirivadhanabhakdi as its
single largest shareholder (via his vehicle companies Thai Beverage Public
Company Limited (“Thai Bev”) and TCC Assets Ltd). “The Group could derive
synergistic benefits from Thai Bev’s broad F&B product portfolio and vast
distribution network in Thailand. However, possible changes in F&N
Limited’s strategic direction remain unclear at this juncture. In addition,
there may be heightened pressure on F&N Limited and F&N Holdings to flow
up dividends to its shareholders, as is typically the case in leveraged
buyouts,” notes Kevin Lim, RAM’s Head of Consumer & Industrial Ratings. “We
also do not discount a potential shift in key management, which may result in
hiccups in operations. As we view F&N Limited and F&N Holdings to be
closely affiliated, any change in the former’s credit profile may have an
impact on the Group,” he adds.
Media contact
Low Pui San
(603) 7628 1051
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