Primary Credit Analyst: Anton Geyze, Moscow, (7) 495-783-4134; firstname.lastname@example.org
Secondary Contact: Anna Overton, London, (44) 20-7176-3642; email@example.com
Additional Contact: Industrial Ratings Europe; CorporateFinanceEurope@standardandpoors.com
• Unilever has announced that it has agreed to acquire 82% of Russian cosmetics producer and distributor Concern Kalina.
• We are placing our 'ruA+' national scale ratings on Kalina on CreditWatch with positive implications.
• The CreditWatch placement reflects our view that we would likely affirm or raise the ratings on Kalina if the acquisition takes place.
MOSCOW (Standard & Poor's) Oct. 18, 2011--Standard & Poor's Ratings Services said today that it had placed its 'ruA+' Russia national scale rating on Russian cosmetics producer and distributor Concern Kalina (JSC) on CreditWatch with positive implications.
The CreditWatch placement reflects the recent bid by higher-rated Unilever PLC (A+/Stable/A-1) to acquire an 82% interest in Kalina for approximately Russian ruble 16.7 billion (€390 million), pending government approval. The acquisition is expected to be complete by year-end 2011. Upon completion, Unilever intends to offer for the remaining shares that are not part of the initial agreement, at such time and on terms mandated by Russian legislation.
Applying our corporate criteria on parent-subsidiary links, we believe economic incentive is the most important factor on which to base our judgment about the degree of linkage between Unilever and Kalina. If the 82% acquisition takes place, we could upgrade or affirm the rating on Kalina, depending on our view of the parent-subsidiary link between Unilever and Kalina.
Kalina's stand-alone rating evolution will depend on the final transaction structure and extent of the use of debt financing at Kalina's level for the acquisition. Kalina's ratio of adjusted debt to EBITDA improved to 1.7x as of June 30, 2011, from 2.7x at year-end 2009, on the back of substantial EBITDA growth. There is therefore a material cushion in Kalina's credit protection metrics compared with our guidelines for maximum leverage for the current rating level (3x adjusted debt to EBITDA).
The rating on Kalina is constrained by the competitive environment in Russia's cosmetics and personal-care industry and the company's modest geographic diversification and limited scale compared with that of international peers. We consider that additional risks stem from Kalina's less-than-adequate liquidity, foreign currency exposure, limited financial flexibility, and thin free operating cash flow.
Somewhat offsetting these risks, in our view, are Kalina's resilient business model, fair profitability, and ability to maintain strong market shares in key business segments.
We expect to resolve the CreditWatch within the next three months, during which time we plan to obtain more information on Unilever's future policy regarding its acquisition of Kalina.
Any rating action will also be subject to clarification about Kalina's financial policy, including investment plans, liquidity management, and target leverage levels.
Related Criteria And Research
• Principles Of Credit Ratings, Feb. 16, 2011
• Use Of CreditWatch And Outlooks, Sept. 14, 2009
• Corporate Criteria--Parent/Subsidiary Links; General Principles;
• Subsidiaries/Joint Ventures/Nonrecourse Projects; Finance Subsidiaries;
• Rating Link to Parent, Oct. 28, 2004