Investors sour on Asahi, Anheuser-Busch deal; Moody's downgrades ratings

Business | 22 Jul 2019 4:13 pm

Asahi Group Holdings is already getting a headache from its US$11 billion Australian foray, Bloomberg reports.

Japan’s biggest brewer, seeking to escape a slow-growing, aging market at home, is buying the Australian assets of Anheuser-Busch InBev NV, which owns iconic but low-priced beers such as Victoria Bitter.

To do so, Asahi will double its debt load and issue about 10 percent more in new shares. That is becoming a hangover for investors, who lopped US$2 billion from the brewer’s market value on today.

The deal is the latest in an overseas buying spree by Asahi, which picked up Fuller, Smith & Turner Plc’s brewing business for US$330 million earlier this year and made a US$11 billion push into Europe two years ago.

The Japanese brewer, along with Kirin Holdings Co. and Sapporo Holdings, has seen domestic beer shipments decline for 14 straight years as fewer people reach legal drinking age.

To stay ahead of rivals, Asahi now appears to be more willing to weigh down its balance sheet.

“The question is whether Asahi can effectively manage the business, while improving profits and cash flows,” said Toshiyasu Ohashi, chief credit analyst at Daiwa Securities Group Inc., who added that Asahi’s credit profile will be hurt as debt grows faster than cash flow. “Can they generate synergies, and can they improve their financials after the deal?”

Shares of Asahi dropped by 8.9 percent in Tokyo trading today, the biggest decline since 2011. The stock was up by 18 percent this year before the deal with AB InBev was announced on Friday.

Asahi said it is securing a 1.2 trillion yen (US$11.1 billion) bridge loan and selling 200 billion yen worth of shares to pay for AB InBev’s Melbourne-based Carlton & United Breweries.

The Japanese brewer is already on the hook for about 1 trillion yen in interest-bearing debt. The company is betting that cash from the Australian business will help pay down debt.

The purchase may lift Asahi’s per-share earnings by 20 percent, according to SMBC Nikko Securities.

There are already early signs of concern over Asahi’s creditworthiness. Moody’s Japan placed the company’s ratings on review for downgrade today, saying the deal will “significantly raise Asahi’s financial leverage.”

Rating & Investment Information Inc. said it would place the brewer on its rating monitor with a view to downgrading. A representative for Tokyo-based Asahi declined to comment.

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