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JAPAN: Moody's downgrades Kirin on Schincariol deal

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Moody's has downgraded Kirin Holdings following the group's deal to acquire control of Schincariol.

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Kirin could fall further in the credit rating agencies' estimation unless it can make an immediate impact in Brazil at the same time as cutting group debt, the agency warned yesterday (24 October). It has cut Kirin from A2 to A3, based on the Japanese brewer's decision to acquire a controlling 50.45% stake in Brazil's second largest brewer behind AmBev, Schincariol.

The move may make it more expensive for Kirin to raise funds, particularly should it seek to acquire the remainder of Schincariol.

Analysts have already labelled the BRL3.95bn (US2.5bn) price tag on the existing Schincariol deal as excessive. It values Schincariol's entire business at around 20 times EBITDA in 2010, compared to a brewing industry average deal valuation of around 12.5 times a target company's annual profits.

Moody's said that it recognises Kirin's need to establish a stronger business outside of Japan. But, it said: "The downgrade incorporates the increasing business risk that Kirin needs to manage in the Brazilian market because of its weak market position, the rising level of competition, and the greater level of volatility when compared with the Japanese market."  

The agency also cited an ongoing lawsuit brought against Kirin by Schincariol's remaining shareholders. This could still annul the deal, although Kirin has said that it is confident in its position.

Thirdly, Moody's said that Kirin's debt to EBITDA ratio will move above three by December 2012, versus 2.7 in June this year. The agency issued a "negative outlook" on the Japanese brewer and said that this will only rise to "stable", at best, if Kirin can enter the Brazilian beer market smoothly. A credit upgrade, it said, is unlikely.


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