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Foodcorp Put on Watch by S&P on Rainbow Acquisition Concern

New Foodcorp Holdings Pty Ltd., a closely held South African food producer, had its debt put on watch by credit-rating company Standard & Poor’s following a takeover offer by Rainbow Chicken Ltd.

“A change in shareholding structure could increase Foodcorp’s debt, a company that was already subject to a leveraged buyout in 2005,” S&P said today in a statement. “There are significant uncertainties related to the transaction, Foodcorp’s future financial policy, and the impact of the new shareholder’s credit quality on Foodcorp.”

Foodcorp has debt held in 390 million euros ($505 million) of 8.75 percent notes due March 2018. They can be redeemed upon a change of ownership control at the company for equal to 101 percent of face value plus accrued and unpaid interest, S&P said. Yields on Foodcorp’s bond dropped five basis points to a record-low 6.12 percent.

Rainbow, South Africa’s largest chicken producer, bid 1 billion rand ($115 million) for 64.2 percent of Johannesburg-based Foodcorp last month. The deal, supported by a planned 3.9 billion-rand rights offer underwritten by majority shareholder Remgro Ltd., would broaden Rainbow’s range to include products from peanut butter to dog food.

Any change of rating will depend on the transaction’s funding and its effect on the company’s debt once the deal is completed, S&P said today.

“The issue of additional debt is something they have singularly come up with,” Justin Williamson, chief executive officer of Foodcorp, said in an e-mailed response to questions. The issue wasn’t brought up by the company, he said.

Remgro owns a 73.4 percent stake in Rainbow.

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