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Moody's downgrades Thai Beverage following Sabeco acquisition

Moody's lowered the issuer rating of Thai Beverage PCL from Baa3 from Baa2 with a negative outlook due to increased debt following its acquisition of Saigon Beer Alcohol Beverage Corp., or Sabeco.

Vietnam Beverage Co. Ltd., the Thai brewer's indirect subsidiary, bought approximately 53.59% of all outstanding ordinary shares of Sabeco for around $4.8 billion, which translates into a multiple of around 20x based on Sabeco's annualized EBITDA, and significantly higher based on Thai Beverage's effective shareholding of 27%.

"The rating action reflects the significant increase in debt to fund a 53.59% stake in Sabeco we expect will drive ThaiBev's consolidated adjusted debt/EBITDA close to 4.8x at year-end September 2018, representing a significant shift in the company's financial risk appetite from our previous expectations of leverage remaining below 2x," Moody's Vice President and Senior Credit Officer Annalisa Di Chiara said.

Thai Beverage's managerial control of Sabeco should provide opportunities to achieve synergies across the procurement of raw materials and packaging materials. But Moody's said that these synergies could take time to materialize.

Moody's also said its rating action reflects the Thai brewer's ability to access the cash flows of its subsidiaries, its increased dependence on dividend flows, and its increasingly complex organizational structure as it attempts to penetrate new markets across southeast Asia.