Moody's downgrades RG Brands to B3; ratings remain on review
April 9, 2009 "Moody’s"
London, 08 April 2009 -- Moody's Investors Service has today downgraded to
B3 from B2 the corporate family rating (CFR) and probability of default
rating (PDR) of JSC RG Brands ("RG Brands" or "the company"). The ratings
remain under review for possible downgrade.
"Today's rating action reflects Moody's expectation that, despite the
automatic price adjustment mechanisms embedded in most existing contracts
between RG Brands and its suppliers, the depreciation of the Kazakh tenge
will reduce the company's margins in 2009 and increase its mostly
foreign-denominated debt," says Stefano del Zompo, lead analyst for RG
Brands at Moody's. "This will likely lead to credit metrics beyond the
targets set by Moody's for the rating category and a breach in the existing
covenants in the first quarter of this year."
The company's 2008 results were only slightly below Moody's expectation of
EBITDA margins above 15% and Debt/EBITDA around 4.5x helped by effective
management of working capital. For 2009, Moody's forecasts EBITDA margins in
the low teens, a Debt/EBITDA ratio above 5.0x and coverage ratios trending
toward par, which would make the company better positioned in the B3 rating
category than the present B2, although Moody's recognises the mostly long
term nature of RG Brands' debt profile.
"The current ratings reflect Moody's belief that the European Bank of
Restructuring and Development ("EBRD") will remain supportive of the company
and will likely agree to an amendment of its covenants going forward to
provide for the devaluation of the Kazakh tenge and the difficult market
environment," explains Mr. del Zompo. "However, the headroom within the new
covenant structure might remain limited in the medium term."
The rating remains under review for possible further downgrade. Moody's
review will continue to focus on: (1) the likelihood that the company will
be able to renegotiate its existing covenants with the EBRD and its other
banks, and maintain sufficient headroom under the new covenant structure;
(2) the short- to medium-term prospects of the company and its capacity to
withstand the current economic downturn; and (3) the company's financial
plan and ability to improve credit metrics.
The last rating action was implemented on 26 February 2009, when Moody's
placed the company's B2 ratings under 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 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, JSC 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 2007, the company reported sales and
EBITDA of around KZT25 billion (USD220 million) and KZT3.4 billion (USD28.3
million), respectively, and is expected to report 2008 results broadly in
line with the previous year's.
Company — RG Brands