Fitch Ratings downgraded Thai Beverage PCL's long-term foreign-currency issuer default rating to 'BBB-' from 'BBB', and its national long-term rating to 'AA(tha)' from 'AA+(tha)'. ThaiBev's ratings were assigned a stable outlook and were removed from Rating Watch Negative.
The ratings action took place after the debt-funded acquisition of Vietnam's Saigon Beer - Alcohol - Beverage Corp., or SABECO. The rating agency anticipates that the Thai company's leverage will reduce to approximately 4.0x by fiscal year 2020, from 4.7x at fiscal year 2019 and 5.7x at fiscal year 2018.
ThaiBev could also lower its debt level more quickly than expected by achieving greater market share, increasing its product distribution channels and improving its efficiencies.
The rating agency said the company improved its business risk profile with acquisitions in Vietnam and Myanmar. EBITDA is expected to grow by 40%, with geographic diversification, in fiscal year 2019. The EBITDA share from Thailand will likely drop below 80% in fiscal year 2019, from over 90% in 2017.
The acquired entities will help maintain a strong market share in their respective geographies. SABECO, in which the Thai company effectively controls a 53.6% stake, had a 41% market share in sales volume in Vietnam's beer market in 2016 while Grand Royal Group, acquired in Oct. 2017, had 65% of Myanmar's whisky market as of March 2017.
Fitch does not expect any positive ratings action for the company in the next 24 months. This could change if the company's funds from operations-adjusted leverage falls below 3.0x on a sustained basis and the ratio of free cash flow margins to net revenue rises above 3.5% for a sustained period.
Events which may lead to a possible negative rating action collectively or individually include FFO-adjusted net leverage remaining above 4.0x by fiscal year 2020, a weakening market position along with sustained weak sales growth, or expansion of non-core investments leading to deterioration in the business risk profile.
