Moody's reviews RG Brands' B2 ratings for possible downgrade
February 26, 2009 "Moody’s"
London, 26 February 2009 -- Moody's Investors Service has today placed the
B2 corporate family rating and probability of default rating of OJSC RG
Brands ("RG Brands" or "the company") under review for possible downgrade.
The following ratings were affected:
- B2 Corporate Family Rating and Probability of Default Rating
"Today's rating action was prompted primarily by the impact that the
decision by Kazakhstan's central bank to allow the devaluation of the Kazakh
tenge by around 18% will have on RG Brands' 2009 financial metrics,"
explains Stefano del Zompo, lead analyst for RG Brands at Moody's. "Moody's
is concerned given the company's relatively large debt exposure to foreign
currencies and large portion of costs denominated in euros and dollars, and
the effect the devaluation could have on its ability to meet a stepped-down
covenant test in March 2009". Other factors continue to exert negative
pressure on the ratings, including:
(i) 2008 results slightly below expectations; (ii) an increasingly difficult
macroeconomic environment in Kazakhstan, leading to reduced consumer
spending and possibly a less favourable sales mix for the company; and (iii)
a significant degree of liquidity risk given a reliance on uncommitted
credit facilities in addition to the committed facilities granted by the
European Bank of Restructuring and Development
("EBRD") and the Development Bank of Kazakhstan.
Moody's understands that the majority of the contracts between RG Brands and
its suppliers include automatic price adjustment mechanisms which should
cushion the pressure from the unfavourable foreign exchange development on
the company's margins this year. "However, Moody's expects that the
devaluation of the Kazakh tenge and the difficult macroeconomic environment
will largely absorb RG Brands' headroom for credit metrics within the rating
category in 2009, says Mr. del Zompo.
"This will render a breach under the existing covenants very likely unless
the EBRD continues to offer its support".
Moody's review will focus on: (i) the likelihood that the company will be
able to renegotiate its existing covenants with the EBRD and its other banks
and to maintain sufficient headroom under the new covenant structure; (ii)
the short-to-medium term prospects of the company and its capacity to
withstand the current economic downturn; and iii) RG Brands'
financial plan and the ability of the company to maintain credit metrics in
line with the targets set by Moody's within its rating category.
Moody's last rating action on RG Brands was on 16 January 2008, when Moody's
affirmed the company's B2 ratings and changed the outlook to negative from
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 Credit Policy & Methodologies directory, in the
Ratings Methodologies subdirectory. Other methodologies and factors that may
have been considered in the process of rating this issuer can also be found
in the Credit Policy & Methodologies directory on Moody's website.
Headquartered in Almaty, Kazakhstan, OJSC RG Brands is a leading food and
beverages 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
grown rapidly through acquisitions. In 2007, the company reported sales and
EBITDA of around KZT25 billion (ca. USD220 million) and KZT3.4 billion (ca
USD28.3 million), respectively and is expected to report 2008 results that
are broadly in line with the previous year.
Company — RG Brands