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ThaiBev goes on a bond binge

[SINGAPORE] Thai Beverage is preparing to raise up to Bt50bn (S$2.09 billion) in its biggest baht bond issue, adding to a string of acquisition-related financings in the local debt market.

Bangkok Bank, Bank of Ayudhya, Kasikornbank, Krungthai Bank, Phatra Securities, Siam Commercial Bank and Standard Chartered Bank have won the mandate for the five-tranche bond, which will come with tenors of two to 10 years. Bookbuilding is scheduled for the second week of March.

ThaiBev is targeting a minimum issue size of Bt40bn with a Bt10bn greenshoe. The seven banks are finalising the various tranches, which will offer tenors of two, three and five years as well as seven-year non-call five and 10-year non-call five.

Preliminary spread talk is in the range of 45bp-110bp over Thai government bonds across the tranches.

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Demand from Thai investors is expected to be healthy, as ThaiBev is a well-known name and a rare credit, which has not sold bonds since 2006. It privately placed a handful of short-dated bills of exchange in 2016 and 2017 but these went to a limited number of investors.

Its identity as an alcohol producer and distributor in a devoutly Buddhist country has caused problems in the past, however. The brewer of the popular Chang beer twice had to shelve plans to list on the Stock Exchange of Thailand after anti-alcohol activists staged widespread protests. It eventually listed in Singapore in 2006.

"As the bonds are being sold to institutional investors and not to the public, ThaiBev's image as a beer brewer may not become a major issue," said one fund manager. "In our prospectus, there is no such restriction in our investments, so I would be keen to buy the company's bonds." Charoen Sirivadhanabhakdi's drinks giant is turning to the local bond market after an acquisition spree in the second half of 2017. ThaiBev completed four purchases, taking a 76% stake in Spice of Asia in Thailand, a 75% stake in Myanmar Supply Chain and Marketing Services and Myanmar Distillery, as well as buying a chain of 252 KFC outlets in Thailand and a 53.59% stake in Saigon Beer-Alcohol-Beverage Joint Stock Corporation (Sabeco) in Vietnam.

Proceeds from this issue are likely to be used to refinance short-term loans that funded the Bt11.3bn acquisition of the KFC franchise and the US$742m Myanmar acquisitions.

Bankers say ThaiBev may look to refinance the Sabeco purchase, which was made via its associate Vietnam Beverage, later this year. That acquisition cost it US$4.8bn and is funded by a combination of US dollar and baht-denominated bank loans totalling US$5bn with tenors of one to 1.5 years.

ThaiBev is believed to be still exploring options to refinance the loans and the debt market is one under consideration.

The beer giant, which produces and distributes both alcoholic and non-alcoholic drinks, saw its credit ratings downgraded earlier this month following the Sabeco purchase. Moody's cut its rating one notch to Baa3 with a negative outlook, citing a "significant shift in the company's financial risk appetite".

Fitch also cut it one notch to BBB-.

The fund manager said low government bond yields have fuelled demand for corporate bonds in general, providing a favourable environment for issuers. The two-year Thai government bond yield was at 1.4% last Wednesday while the 10-year was at 2.55%.

"The bond market is still very competitive compared with the bank loan market," said Ariya Tiranaprakij, executive vice president of the Thai Bond Market Association.

"Large conglomerates can raise funds with lower costs in the bond market and lock in currently low interest rates. At the same time, the market is flush with liquidity as investors are seeking higher yields than the low bank deposit rates." ThaiBev is the latest Thai company to refinance bridge loans used for large acquisitions in the onshore bond market.

In 2013, CP All refinanced a major portion of its US$6.6bn debt-funded purchase of Makro with local currency bonds, such that it is now one of the largest issuers in Thailand with a combined Bt252bn in outstanding notes. The convenience-store operator regularly refinances maturing debt with new bond issues.

Berli Jucker adopted the same strategy, selling bonds for a combined Bt125bn in 2016-17 to partly refinance bridge loans used to fund the US$6.2bn acquisition of hypermarket chain Big C. Thai Union Group also raised Bt13bn in January last year to refinance bridge loans that funded a US$575m stake acquisition in Red Lobster Master Holdings.


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