RAM Ratings assigns AA1(s) and P1(s) ratings to F&N’s proposed debt facilities

Published on 18 September 2013

RAM Ratings has assigned respective long- and short-term ratings of AA1(s)/Stable and P1(s) to F&N Capital Sdn Bhd’s proposed RM750 million MTN Programme (2013/2028) and proposed RM750 million CP Programme (2013/2020). Concurrently, the AA1(s)/Stable/P1(s) ratings of F&N Capital’s RM1 billion CP/MTN Programme (2008/2015) have also been reaffirmed. All the debt facilities are backed by full, unconditional and irrevocable corporate guarantees from F&N Capital’s parent, Fraser & Neave Holdings Bhd (F&N Holdings or the Group). As such, the ratings are based on the credit profile of the Group.

The ratings reflect F&N Holdings’ formidable positions in several F&B segments and solid financial profile. It is a leader in the overall ready-to-drink market in Malaysia as well as the Malaysian and Thai dairy-product markets. For 9M FY Sep 2013, the Group’s annualised funds from operations debt coverage (FFODC) came in at a strong 0.77 times (FY Sep 2012: 0.48 times), backed by the recovery of its Thai operations (which had previously been disrupted by floods) and the stronger performance of its soft-drinks division. Its balance sheet stayed conservative as at end-June 2013. The Group is in a near net cash position, while gearing ratio  inched-up slightly to 0.32 times as at end-June 2013 (end-September 2012: 0.29 times).

Looking ahead, F&N Holdings’ financial profile is expected to remain sturdy, underpinned by its stable F&B business and commendable cashflow-generating ability. Factoring RM500 million of debt for potential acquisitions, the Group’s adjusted gearing ratio is expected to be about 0.5 times over the next 3 years, with a corresponding adjusted FFODC of around 0.4 times. Meanwhile, funding plans for F&N Holdings’ joint venture to develop a mixed property in Petaling Jaya’s Section 13 have yet to be firmed up. The proportionate consolidation of the joint venture’s debt load will put the Group’s adjusted gearing ratio and adjusted FFODC at about 0.6 times and 0.35 times, respectively.

We remain cautious about the uncertainties arising from changes at Fraser and Neave Limited (the Group’s parent). In February 2013, Thai billionaire Charoen Sirivadhanabhakdi (via Thai Beverage Public Company Limited and TCC Assets Ltd) became F&N Limited’s single largest shareholder, with a 90.3%-stake. The estimated SGD13.8 billion acquisition had been mainly debt-funded. Since the entry of its new shareholder, there have been changes in the senior management line-ups at both F&N Limited and F&N Holdings.

“F&N Limited recently proposed to spin off its property business, following which its financial position is expected to improve. We do not discount further reorganisation of the F&B businesses controlled by Mr Sirivadhanabhakdi,” observes Kevin Lim, RAM’s Head of Consumer and Industrial Ratings. There is also heightened pressure on F&N Limited (and, indirectly, F&N Holdings) to support its shareholder, as underlined by the SGD4.7 billion capital distribution recently. Given the close affiliation between F&N Limited and F&N Holdings, changes in the former’s credit profile may affect the Group’s ratings.

The ratings are also moderated by the increasingly more competitive F&B landscape. Apart from the emergence of The Coca-Cola Company as a competitor, the situation is exacerbated by the introduction of new products by other F&B players. Likewise, competition has become 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 its licences for brands not owned by the Group or F&N Limited.

Media contact

Juliana Koay

(603) 7628 1169

juliana@ram.com.my