On 15 November, Overseas Union Enterprise (OUE) offered to buy F&N for SGD13.1 billion, or SGD9.08 per share. The price is more than the SGD8.88 per share, or SGD8.8 billion, offered by ThaiBev and its partner in the deal, TCC Assets Ltd.

At the same time, Kirin Holdings Co., Ltd. (A3 negative), the second-largest shareholder of F&N, with a 14.8% stake, has agreed to vote in favour of OUE's offer. In return, OUE will sell F&N's food and beverage business to Kirin for SGD2.7billion, once its offer is approved.

OUE's bid could lead to two possibilities for ThaiBev: 1) ThaiBev and TCC Assets may increase their offer price for F&N to gain complete or partial control, or 2) the companies may surrender their existing stake of 33.6%, now worth over SGD4 billion.

As many elements of this transaction are still evolving, there is limited clarity regarding the final impact on key credit metrics as well as on the company's financial position, growth strategy, and business composition.

In view of these additional uncertainties, the resolution of the ratings review will be further delayed.

Currently, the review for downgrade continues to reflect ThaiBev's increased leverage and the uncertainty regarding the strategic intent of its main shareholders, Chareon Sirivadhanabhakdi and Khunying Wanna Sirivadhanabhakdi, who also control TCC Assets and have been orchestrating the takeover bid for F&N.

In addition, the motivation of these shareholders has raised additional credit concerns -- including the influence over ThaiBev's strategic direction and appetite for acquisitions -- and left little clarity regarding ThaiBev's role in the group's overall strategy, a further credit negative.

We will conclude the review of ThaiBev's rating after there is more clarity regarding the F&N deal along with the following issues:

(1) The strategic rationale of the F&N transaction and its impact on ThaiBev's business composition and growth strategy.

(2) The intention of ThaiBev's controlling shareholders and their influence over the group's strategic direction.

(3) Key credit metrics and the company's financial flexibility, including liquidity and debt-funding requirements.

(4) ThaiBev's financial policies and overall risk tolerance.

We placed ThaiBev's Baa2 issuer rating on review for downgrade on 19 July, when the company submitted a binding offer to acquire a 22% stake in F&N for SGD2.8 billion. This offer prompted a takeover battle for F&N and its assets, including its 40% stake in Asia Pacific Breweries (APB), which it ultimately sold to Heineken N.V. (Baa1 stable) for SGD5.6 billion on 15 November.

To date, ThaiBev and TCC Assets have spent more than SGD3.6 billion -- by raising debt -- to increase their stake in F&N to 33.6%. As a result, ThaiBev's leverage, as measured by debt/EBITDA, increased to more than 4x, a level materially higher than its historical levels of around 1x.

ThaiBev and TCC Assets also rejected F&N's proposed cash distribution of approximately SGD4 billion to shareholders, following the sale of the latter's stake in APB to Heineken, a move that has kept ThaiBev's leverage elevated, which is credit negative.

Even in the absence of APB, F&N's consumer beverage portfolio would provide some strategic benefit to Thai Bev's growing non-alcohol and beer businesses, although to a lesser degree.

Conversely, if the offers from OUE and Kirin are accepted, then the competitive landscape will change and likely temper ThaiBev's growth opportunities in the non-alcoholic beverage segment -- a situation that would be credit negative.

At the same time, we will consider the impact on ThaiBev's credit metrics and financial flexibility from the sale of its stake in F&N. Should all the proceeds from the sale be used to pay down debt, such that leverage is restored to historical levels, this would be credit positive.

Annalisa Di Chiara Vice President - Senior Analyst Corporate Finance Group Moody'sInvestors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Philipp L. Lotter MD - Corporate Finance Corporate Finance Group JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (65) 6398-8308 Releasing Office: Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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