Fitch Places Embotelladora Andina on Rating Watch Negative
NEW YORK -- July 11, 2013
Fitch Ratings has placed the following ratings of Embotelladora Andina S.A.
(Andina) on Rating Watch Negative:
--Long term local and foreign currency Issuer Default Rating (IDR) 'A';
--Senior unsecured notes 'A';
--Long-term national scale rating 'AA+(cl)';
--Senior unsecured notes 'AA+(cl)'.
KEY RATING DRIVERS
These ratings follow the announcement by the company that it has reached a
definitive agreement to purchase Companhia de Bebidas Ipiranga (Ipiranga) for
approximately BRL1.2 billion (USD538 million). Ipiranga is a Coca-Cola bottler
that has bottling territories in the Brazilian states of Sao Paulo and Minas
Gerais. In the announcement, Andina stated that Ipiranga generated BRL112
million of EBITDA during 2012 on revenues of BRL695 million. The transaction
will be financed with debt and is subject to approval by The Coca-Cola Company
and Brazil's anti-trust agency, Conselho Administrative of Defesa Economica'
(CADE). Fitch views the approval from CADE and The Coca-Cola Company as highly
If the transaction proceeds as announced, Fitch expects to downgrade Andina's
international ratings to 'A-' and its national scale ratings to 'AA(cl)' at
the closing of the transaction The downgrades would be a result of an increase
in Andina's net leverage to approximately 1.9x on a pro forma basis. This
degree of leverage is above average for the 'A' and 'AA+(cl)' rating
categories and is high in relation to the 0.65x average net debt/EBITDA ratio
maintained by the company from 2008 to 2012. The downgrades would also bring
into consideration a more aggressive approach to inorganic growth by Andina.
During October 2012, Andina merged with Coca Cola Polar, which had higher
leverage. This acquisition came on the heels of the company's acquisition of a
40% stake in the Brazilian bottler Sorocaba Refrescos S.A. (Sorocaba) during
August 2012 for BRL145 million.
During the LTM ended March 31, 2013, Andina generated CLP219 billion of
EBITDA. This figure includes the consolidation of Coca-Cola Polar for only six
months. If it had been included for 12 months, Fitch estimates Andina's LTM
EBITDA would have been more than CLP240 billion. Andina's net debt as of March
31, 2013 was CLP242 billion. On a pro forma basis, treating the acquisition as
being 100% financed with debt and before synergies, Fitch estimates Andina's
net leverage to be slightly more than 1.9x.
Andina is one of the largest Coca-Cola bottlers in the world. It is the
leading producer of soft drinks in Chile and the second largest producer in
Brazil and Argentina. The company also has a strong presence in Paraguay.
During 2012, Ipiranga sold 89 million unit cases of beverages. The Coca-Cola
Company owns 14.65% of Andina's equity.
Andina's ratings are likely to be downgraded by one notch if the transaction
proceeds as planned. Fitch does not foresee Andina returning to as strong of a
capital structure as was maintained in the past due to its more aggressive
approach to inorganic growth. If Fitch believes that leverage could remain in
excess of 2.0x for a sustained period of time, additional negative rating
actions could occur.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 12, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology
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Viktoria Krane, +1-212-908-0367
Fitch Ratings, Inc.
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