Sale ‘positive for SABMiller’s credit profile’

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Ihsaan Haffejee

SABMiller is selling its stake in Tsogo Sun, which owns the Silverstar Casino. Photo: Ihsaan Haffejee

Johannesburg - SABMiller’s sale of its R11.7 billion stake in Tsogo Sun would boost the brewer’s financial profile by providing additional funds for its investment plan and improve its net debt position, Moody’s Investors Service said yesterday.

The credit rating agency said the plan by the second-largest brewer to dispose of its stake in South Africa’s largest hotel and gaming group was credit positive. SABMiller’s rating remained unaffected at Baa1 with a stable outlook.

SABMiller said this week that the R11.7bn stake would be sold through a combination of a secondary placing to institutional investors and a repurchase by Tsogo Sun. The number of placing shares and the price would be determined following a book-building process.

The other component would be a proposed repurchase by Tsogo Sun of a minimum of 130.2 million ordinary shares from SABMiller for R2.8bn.

Tsogo Sun said this transaction would be settled by a combination of existing cash reserves and debt facilities.

Moody’s said although hotels and casinos in South Africa had generally displayed good profitability, these had only contributed 1 percent to SABMiller’s group producer revenue and 2 percent of the reported earnings before interest, tax and amortisation (Ebita) for the financial year to March.

SABMiller said earlier this week that despite a good financial performance by Tsogo Sun, the hotel and gaming industries were not core to its operations. “We have concluded that the time is right for us to exit our investment through a transaction, which is beneficial to the shareholders of both companies,” SABMiller chief executive Alan Clark said.

Paolo Leschiutta, a vice-president and senior credit officer at Moody’s, said: “The sale of its stake in Tsogo Sun will reduce SABMiller’s exposure to South Africa, which should, in Moody’s opinion, support further geographic diversification and help reduce the degree of volatility and sensitivity to currency movements.”

Leschiutta added that SABMiller’s local business had been hit by higher currency headwinds that led to a 9 percent contraction in Ebita on a reported basis, compared with 7 percent growth on a constant currency basis.

Moody’s also understood that the company was likely to reinvest the proceeds of the disposal in its core beverage business, including its African operations. “High exposure to emerging and developing countries offers medium- to long-term growth potential for SABMiller and the company may benefit from strong growth prospects in terms of value in the beer segment in African countries,” Leschiutta said.

This came against the backdrop of a 6 percent organic growth in sales volumes on the continent in the 2013/14 financial year, compared with 1 percent growth in Latin America and 5 percent growth in the Asia Pacific region.

The proceeds of the sale will assist SABMiller to improve its net debt position.

Moody’s said the brewer’s key credit metrics improved further during 2013/14, in line with its deleveraging efforts following the Foster’s acquisition. However, Moody’s found that the retained cash flow to net debt at 19.9 percent in 2013/14 was still at the lower end of the rating range.

Meanwhile, SABMiller pledged yesterday to cut water use across its operations by at least 14 percent in six years. It said it would reduce water use to 3 litres of water per litre of beer and 1.8 litres of water per litre of soft drinks by 2020.

The shares shed 0.66 percent to close at R594.25 yesterday.


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