Thai Bev uses F&N proceeds of $1.35b to pay debts

ThaiBev incurred more than $3b debt in 2012.

According to Moody's, Thai Beverage Public Company disclosed 14 August that it received SGD1.35 billion ($1.05 billion) from a capital reduction by Fraser & Neave Limited, in which ThaiBev owns a 28.61% stake.

ThaiBev used the full amount of proceeds to reduce SGD1 billion ($779 million) of long-term debt and SGD353 million ($275 million) of short-term debt, a credit positive.

Here's more from Moody's:

Pro forma for the debt reduction, ThaiBev’s adjusted debt to EBITDA declined to 2.8x from 4.2x as of 30 June. We expect ThaiBev will keep its leverage below 3.0x and that it won’t undertake any material additional debt-funded acquisitions over the next 12-18 months.

Throughout 2012, ThaiBev incurred more than SGD3.0 billion ($2.3 billion) in debt to assume its F&N stake, stretching its leverage, as measured by adjusted debt to EBITDA, to more than 4x from less than 1x historically.

ThaiBev disclosed the capital reduction, which had been expected, in a footnote in its interim financial statement. In May, the board of F&N, a pan-Asian consumer conglomerate, had proposed a capital reduction for a total aggregated amount of SGD4.73 billion ($3.73 billion), to be funded with internal existing cash and equivalents. The distribution accounts for around 85% of the SGD5.59 billion ($4.35 billion) gross sale proceeds of F&N’s interests in Asia Pacific Brewery (unrated). Based on ThaiBev’s 28.61% stake in F&N, this amount translates to SGD1.35 billion ($1.05 billion) of proceeds for ThaiBev.

ThaiBev’s deleveraging follows weak earnings in the first half of the year. Year-on-year sales decreased 7.3% owing to sales volume declines across almost all of the company’s product categories, including spirits, beer and soft drinks.

The sales volume decline in the alcohol segment largely reflects lower consumption following increased prices for spirits as a result of an increase in excise taxes in Thailand a year ago. The soft drink decline reflects the termination of Sermsuk PLC’s (unrated) bottling contract with PepsiCo, Inc(A1 stable) in Thailand, which ended in November 2012. This is the first year Sermsuk, in which ThaiBev owns a nearly 65% stake, is selling its own brands.

ThaiBev’s EBITDA for first half of 2013 also declined by 18% from the same period in 2012 to THB11.9 billion ($3.7 billion), reflecting lower sales, higher marketing expenses and increased wages. We expect marketing expenses will remain high given the competitive beverage market in Thailand as well as the launch of new products by both ThaiBev and competitors.

We expect overall sales volumes for ThaiBev, particularly for its beer and soft drinks revenues will likely remain tempered during the second half of the year. However, ThaiBev should still continue to generate stable operating cash flows over the next 12 months from its spirit segment, given its strong domestic market share in that segment.