RAM Ratings has reaffirmed the respective AA1(s)/Stable and P1(s) ratings of F&N Capital Sdn Bhd’s (F&N Capital) RM750 million MTN Programme (2013/2028) and RM750 million CP Programme (2013/2020).

Published on 21 July 2014

RAM Ratings has reaffirmed the respective AA1(s)/Stable and P1(s) ratings of F&N Capital Sdn Bhd’s (F&N Capital) RM750 million MTN Programme (2013/2028) and RM750 million CP Programme (2013/2020). 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’ dominance 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. F&N Holdings’ financial profile remained robust. As at end-March 2014, the Group was in a near net-cash position while its gearing ratio stood at 0.25 times (end-September 2012: 0.29 times). The Group’s funds from operations debt coverage averaged 0.74 times over the past 3 years, coming in at 1 time as at end-1H FY Sep 2014.
F&N Holdings’ operating profit before interest and tax (OPBIT) margin expanded to 7.1% in FY Sep 2013, driven by the full recovery of its Thai operations from the 6-month disruption in production caused by floods in October 2011. The Group’s earnings momentum continued into 1H FY Sep 2014, when it posted an annualised OPBIT margin of 8.9%. The profitability of its soft-drinks division improved amid a more favourable sales mix and lower input costs. The stronger showing was also due to cost savings at the Group’s new dairy plant and tighter control of trade discounts. Looking ahead, F&N Holdings’ financial profile is expected to remain sturdy, underpinned by its stable F&B business and strong cashflow-generating ability.
However, uncertainties remain as a result of management changes at Fraser and Neave Limited (the Group’s parent) and F&N Holdings, subsequent to Thai billionaire Chareon Sirivadhanabhakdi becoming F&N Limited’s largest shareholder in February 2013. Sirivadhanabhakdi currently holds an 88% stake in F&N Limited. We do not discount further reorganisation of businesses controlled by Sirivadhanabhakdi, following the recent spin-off of F&N Limited’s property division. The highly-leveraged buyout (estimated at SGD13.8 billion) has resulted in heightened pressure on F&N Limited, and indirectly on F&N Holdings, to support its new shareholder – as underlined by F&N Limited’s capital distribution in May 2013 and April 2014. Given the strong links between F&N Limited and F&N Holdings, changes in the former’s credit profile may have an impact on the Group.
The ratings are further moderated by the increasingly challenging industry landscape. The emergence of The Coca-Cola Company as a competitor has led to a decline in the Group’s market share of carbonated soft drinks over the past 2 years. The situation is exacerbated by 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 to market brands not owned by the Group or F&N Limited.

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