TRIS Rating Co., Ltd. has revised the rating outlook of Sub Sri Thai PLC (SST) to “negative” from “stable”. The outlook revision reflects an expected deterioration in SST’s credit profile following the acquisition of the unfamiliar food business. The “negative” outlook reflects the highly leveraged structure of SST after it makes a sizeable new investment. The rating could be downgraded if the company takes longer time to demonstrate its ability to operate the unfamiliar business smoothly. On the other hand, the outlook could be revised back to “stable” should the company succeed in managing the food business, and restoring its financial strengths.
At the same time, TRIS Rating has affirmed the company rating of SST at “BBB-“. The rating continues to reflect SST’s long track record in the storage business and the recent acquisition of soybean business.
TRIS Rating said, on 27 November 2011, SST announced to purchase all of the equity of Mudman Ltd. (Mudman), ABP Caf? (Thailand) Co., Ltd. (ABP), and Golden Donuts (Thailand) Co., Ltd. (GD). The acquisition has total value of Bt1,320 million, which equals 74% of SST’s total asset. The transaction will be subject to certain requirements, including approval from SST’s shareholders and written consents from the franchisors.
Mudman is a holding company, which has 41% stake in ABP and GD. ABP is the country’s exclusive franchisee of “Au Bon Pain”, a global caf? and dining chain. As of May 2011, there are 43 outlets of Au Bon Pain nationwide, of which 38 are located in Greater Bangkok. GD is the country’s master franchisee of “Dunkin’ Donuts”, a top international quick service restaurant chain. As of May 2011, there are 201 company-owned outlets nationwide. In 2010, the combined revenue of Au Bon Pain and Dunkin’ Donuts was Bt1,150 million, more than SST’s existing revenue from storage and soybean businesses of approximately Bt800 million per year.
After the acquisition, TRIS Rating views that the business profile of SST will change abruptly. Once the acquisition complete, more than half of the total revenue will come from food segment, which is unrelated to SST’s existing storage and soybean businesses. In addition, SST’s capital structure will deteriorate significantly. Total debt will increase by 65% from Bt1,299 million as of September 2011 as it plans to fund the investment with bank loan of Bt850 million. -- End
Company Rating: Affirmed at BBB- Rating Outlook: Negative from Stable
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