Charoen Sirivadhanabhakdi, Thailand’s second-richest person, has sealed a S$3.8 billion ($3 billion) deal to buy stakes in Singapore’s Fraser and Neave and Asia Pacific Breweries, a joint venture between Heineken and Fraser and Neave that makes Tiger Beer.
The acquisition of the Fraser and Neave stake is being made through Charoen’s ThaiBev, Thailand’s biggest drinks maker. A company controlled by his son-in-law, Kindest Place Groups, is buying the stake in Asia Pacific Breweries. The sellers are OCBC and its insurance arm, Great Eastern; as well as the family of Lee Kong Chian, through Lee Rubber.
Lee Kuan Yew’s second son is chairman of Fraser and Neave and such a connection clearly adds to the allure for foreign investors looking for a foothold in Singapore.
ThaiBev is paying S$8.88 a share to buy roughly 22% of Fraser and Neave, for a total of S$2.8 billion. Kindest Place is paying S$45 a share for an 8.6% stake in Asia Pacific Breweries, for a total investment of S$985 million. That represents a premium of 11.6% and 18%, respectively.
OCBC is contributing 3.4% of Asia Pacific Breweries and 3.2% of Fraser and Neave, while Great Eastern is offering up 4.6% and 14.9%, respectively. As with all financial institutions in the current market environment, OCBC is under pressure to free up capital. OCBC has been a shareholder in Fraser and Neave for more than 50 years, but the stock’s recent gains make for a compelling reason to sell.
The company’s share price has recovered strongly from a post-crisis slump, when it reached as low as S$1.85 during the first quarter of 2009. At the start of this week it was pushing highs of S$8.34.
The rest of the stakes came from entities owned by the Lee family, which is its biggest shareholder. The company has no shortage of suitors. In addition to Heineken’s interest in Asia Pacific Breweries, Japanese rival Kirin also has a 14.7% stake in Fraser and Neave, which it bought last year to Heineken’s obvious surprise.
Fraser and Neave is the biggest beverage company in Singapore and Malaysia, where it has been doing business since the 1930s, and has a presence in more than 30 countries, while Asia Pacific Breweries has a portfolio of more than 40 beers and operates 31 breweries in 15 countries in Asia.
Such a business obviously fits with ThaiBev’s strategic goals. Already dominant in Thailand, it is keen to capture growth in overseas markets, and especially in Southeast Asia. It is also attracted to Tiger Beer’s premium brand image and to Fraser and Neave’s dairy business, both of which would add something new to ThaiBev’s beverage portfolio.
Charoen is also interested in Fraser and Neave’s property holdings. He has substantial property investments in Thailand and, according to a source, has also made a lot of money in Singapore real estate, having been a regular visitor since 2006, when ThaiBev moved its initial public offering to the city after abstemious monks prevented the company from listing in Thailand.
Half of Fraser and Neave’s profits come from its property arm, Frasers Centrepoint, a leading integrated Singapore-based property company with a strong foothold in property development, property investment, serviced residences and which owns two listed real estate investment trusts: Frasers Centrepoint Trust and Frasers Commercial Trust.
Moody’s, which rates ThaiBev Baa2, placed the company under review for downgrade yesterday morning. It noted that the deal will lift the company’s debt to around three-and-a-half times earnings (before interest, taxes, depreciation and amortisation), compared to its history of maintaining similar levels of debt to earnings.
Later in the day, Standard & Poor’s, which rates the company BBB, followed Moody’s lead. “We estimate that Thai Bev's debt-to-Ebitda ratio could weaken to about 3.2x in 2012, following the acquisition, from 1x in 2011,” said S&P credit analyst Xavier Jean. “Our Ebitda calculation includes Thai Bev's share of income from F&N. We also anticipate that ThaiBev's capital structure will weaken substantially over the next two years with a ratio of debt to debt plus equity above 50% until 2014 compared with 25.6% in 2011.”
Investors agree, having pushed the stock down almost 5% during yesterday’s trading in the wake of the news.
However, a source with knowledge of the deal said that although the amount of debt is large, ThaiBev has strong earnings and generates enough cashflow to manage the repayments — and that in the event of a downgrade the company could return to the investment-grade bracket without the need to raise much equity.
The source added that ThaiBev considers the real estate portfolio to be key to the valuation and that Charoen is confident in the returns on offer from Singapore property.
HSBC and Morgan Stanley advised the buyers, while the sellers acted without external advisers.
The deal comes amid strong interest in Southest Asia by investment bankers, particularly as activity in China has slowed considerably. Indeed, the volume of cross-border M&A by Southeast Asian buyers is more than double the level at this time last year. According to Dealogic, Southeast Asian buyers have spent more $32 billion on overseas acquisitions this year, putting the region on track for a record-breaking year.
Correction: A previous version of this story incorrectly implied that the Lee family selling shares in Fraser and Neave and Asia Pacific Breweries was the family of Lee Kwan Yew.
