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Moody's confirms RG Brands at B3; outlook negative

September 09, 2009 | Moody's Investors Service

London, 08 September 2009 -- Moody's Investors Service has today confirmed the B3 corporate family rating (CFR) and probability of default rating
(PDR) of OJSC RG Brands ("RG Brands"). The outlook on the company's CFR is negative. Today's rating action concludes the review on the company's ratings initiated on 8 April 2009.

"The confirmation of RG Brands' ratings reflects Moody's expectation that, despite a challenging domestic market environment characterised by downtrading in a number of key product categories and a liquidity position still heavily reliant on external funding from local and international banks, RG Brands is expected to continue to benefit from its leading position in the domestic consumer product market, to reduce leverage below current levels and to achieve positive free cash flow generation already in 2009" says Stefano del Zompo, lead analyst for RG Brands at Moody's.

Moody's understands that the company has successfully renegotiated its debt covenants for 2009, increasing, among other things, the maximum level of Net Debt/EBITDA to 5.6x in Q3 2009 and 5.1x in Q4 2009 from 3.75x. "Therefore, Moody's expects the headroom within the company's covenants to remain adequate until the end of the year, but cautions that levels will revert back to original levels starting from Q1 2010 and that the company will likely not meet these covenants without obtaining additional waivers or support from the lending banks," adds Mr. del Zompo. "The current ratings are nonetheless predicated on Moody's belief that the European Bank of Reconstruction and Development ("EBRD") and other lending banks will remain supportive of the company going forward."

The outlook is negative, reflecting the difficult macroeconomic environment, competitive pressure in a number of the segments in which the company operates, including carbonated soft drinks, and a tight covenant structure.

The last rating action was implemented on 8 April 2009, when Moody's downgraded the company's ratings to B3 from B2 and maintained the review for possible downgrade.

The principal methodology used in rating RG Brands was Moody's Global Packaged Goods Industry Methodology, published in January 2005 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Headquartered in Almaty, Kazakhstan, OJSC RG Brands is a leading food and beverage producer in Central Asia. The company, which is 100% owned by the Resmi Group and RG Brands' management team, was established in 1994 and has rapidly grown through acquisitions. In 2008, the company reported sales and EBITDA of around KZT24.5 billion (USD220 million) and KZT3.9 billion (USD28.3 million), respectively.

Company: RG Brands

Full company nameOpen Joint Stock Copmany "RG Brands"
Country of riskKazakhstan
IndustryFood industry

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