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Friday, 14 December 2018

Brewery giant AB InBev avoids downgrade

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Drinks giant AB InBev staved off a Moody’s downgrade after halving interim dividends as it prioritises deleveraging over stockholder rewards, CreditSights said on Thursday.

Moody’s warned earlier this month that the A3 rated Belgian brewer could fall to Triple B territory, citing slow progress in cutting its debt load after its US$110bn acquisition of SABMiller two years ago.

“We would think AB InBev management has done enough to restrict a downgrade from Moody’s to one notch (Baa1),” CreditSights said.

“It might also stave off draconian action from S&P, which has a negative outlook on an A- rating,” it said.

Ratings agencies have turned up the heat on companies that have not met commitments to reduce debt following large acquisitions. 

Bonds issued by AB InBev, whose brands include Stella Artois, Budweiser and Corona, were looking stronger on Thursday, though still far off this year’s highs.

Its 4.9% 2046s, one of the most heavily traded bonds on the day, was changing hands at a dollar price of 95.858, or 184bp over US Treasuries, according to MarketAxess data.

That was about 30 cents higher on the day, but off a high of 101.206 on October 1, when Moody’s placed AB InBev’s senior secured rating on review for a downgrade.

Its 3.5% 2024s have rallied nicely to trade at 98.975, up over a point from this morning’s levels.

The company’s stock, however, dropped more than 10% to €64.85 on Thursday following news of the dividend cut.

The company has seen beer sales decline in its biggest markets - the US and Brazil - while its numbers have also been hit by hyperinflation in Argentina.

Third-quarter Ebitda jumped 7.5% on a like-for-like basis to US$5.36bn, but that was below expectations of US$5.71bn, according to Reuters.

 

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