E-Malt.com News article: Turkey: Efes brewery outlook revised to Negative by Fitch Ratings

Fitch Ratings has taken various rating actions with respect to Turkish brewer Anadolu Efes Biracilik ve Malt Sanayii A.S. (Efes), Reuters communicated on February, 18.

Turkey’s leading brewer was rated as follows:

Long-term foreign currency Issuer Default Rating (IDR): affirmed at 'BB'; Outlook remains Stable Long-term local currency IDR: affirmed at 'BB+'; Outlook revised to Negative from Stable National Long Term Rating: affirmed at 'AA+ (tur)'; Outlook revised to Negative from Stable.

"The change of Outlook reflects Fitch's concerns about the exposure of Efes's leverage to the deteriorating consumer environment and to the weakness of the currencies in which it operates, as well as a moderate degree of refinancing risk," said Giulio Lombardi, Senior Director in Fitch's European Leisure and Consumer Products Group.

In affirming the ratings, Fitch has taken into account Efes's virtually unchallenged leadership position in the Turkish beer market (over 85% share) and its ability, through stable cash flow, to support its 70%-owned international subsidiary, Efes Breweries International (EBI), during its past expansion and within the current challenging environment.

Turkey's beer market has grown consistently in volume at a compounded annual growth rate of almost 6% over 2001-2008. Efes is a profitable and well-managed regional brewer. It focuses on the Eastern European beer markets and has also benefited from a proven ability to adjust to macroeconomic downturns such as the crisis that struck Turkey in 2000 - 2001.

Fitch expects Turkey and Russia, the key contributors to Efes' EBITDA (accounting for approximately 70% and 20% of FY08 EBITDA respectively), to suffer a contraction of GDP and impaired consumer confidence and disposable income during 2009 and possibly beyond.

Additionally, the agency notes that the majority of Efes' debt is denominated in USD, which has significantly appreciated against the Turkish lira (YTL) and the Russian rouble. Efes's Net Debt/EBITDA was 1.2x at FYE07. The agency estimates that this measure could rise marginally at FYE08 as a result of the investment programme and the acquisitions conducted by EBI and because of adverse currency movements.

According to various scenarios conducted by the agency, Fitch believes that Efes's leverage could either remain at this level for FYE09 or deteriorate closer to 2.0x - a level that could be incompatible with the current local currency IDR of 'BB+'. Fitch includes two put options for the purchase of minority stakes by EBI in assessing Efes's debt.

Almost half of the gross debt of the company's beer operations (estimated at under USD1.0 bln as of FYE08) is due in 2009, with another approximately USD100 mln due in 2010. There is therefore a certain degree of refinancing risk for 2009 and 2010.

The debt, which, is mostly at the level of EBI, includes a USD300 mln syndicated facility guaranteed by the parent Anadolu Efes as well as drawings under short term, uncommitted lines. Refinancing risk is mitigated by the large cash balances held both by Anadolu Efes and by EBI at FYE08 as well as by cash flow generation.

Fitch therefore believes that the company's risk of refinancing its debt should be manageable. In affirming Efes's ratings, Fitch has taken some comfort from the company's past performance when Turkey's economic output contracted and it expects much of the possible adverse effects on Efes's FY09 cash flow to be mitigated by the current decline in raw material prices and by a scaling down of group capex.


20 February, 2009