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Thai Beverage Public Company Limited - Why did it not take F&N private?

Kiran Rameshchandra
Investor Central

2/5/2013 – The owners of Fraser & Neave (F&N), TCC Assets and Thai Beverage, have announced that they will keep F&N listed.

The market was expecting Thai billionaire Charoen Sirivadhanabhakdi to delist F&N as it holds 90.3% of the firm through TCC Assets and Thai Beverage.

In January, Charoen won a two month battle against a group led by Overseas Union Enterprise after raising his bid for the F&N shares he did not own to S$9.55 per share.

Under Singapore Exchange listing rules, the free float of a company must be at least 10% for it to remain listed.

The Thai firms’ decision to maintain F&N’s listing may sell shares in a placement, or a part sale, to meet this requirement.

CIMB Research maintained its OUTPERFORM rating with a target price of S$0.77 as it does not think that this is the end of F&N’s restructuring or Thai Bev’s regional consumer strategy.

It still expects F&N to be broken up eventually into its property and consumer parts.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

1. Why did it not take F&N private?

Restoring the free float to 10% simply entails a sell down of 0.4% or a placement of some new F&N shares.

That is not difficult.

The question is why.

With Thai Beverage ostensibly interested in only the food & beverage assets and TCC Assets clearly more interested in the property assets, it would be easier to split up the conglomerate by taking F&N private.

CIMB Research thinks TCC needs F&N to stay listed for its stake in F&N to be better recognised as bank collateral.

A second reason could be the group wants to keep F&N listed for the purpose of brand value.

2. Is F&N being prepared for a reverse take-over?

F&N’s assets could be moved under any one of Charoen’s umbrella companies, leaving an empty shell.

These are attractive to companies that want to list without issuing a prospectus, for example, Wilmar International listed by a reverse take-over of Ezyhealth Asia Pacific.

Perhaps Charoen already has a buyer in mind?

Perhaps he plans a reverse take-over himself, achieving an SGX-listing for one of his other businesses?

3. Is a restructure inevitable?

One possibility is that Thai Beverage could end up as a holding company for three non-alcoholic consumer businesses, with Thai Beverage and TCC ending up sharing ownership of a mixed consumer-property vehicle.

CIMB Research thinks that this is unlikely as the way Chaoren has structured his empire in the past is to have single-type businesses and pave the way for each part of his empire to be run by each of his children.

Indeed, if there is no further restructuring in future, the disconnected nature of three non-alcoholic consumer businesses and the shared ownership of F&N between Thai Beverage and TCC may lead to a 10% to 20% holding company discount.

This less likely scenario is most detrimental to its fair value of stock price.

Therefore, is it inevitable that the business will be restructured?

Perhaps the investment bankers are already devising ways that this could be done.

4. How does Thai Beverage plan to cut its debt following the recent S&P downgrade?

S&P recently downgraded Thai Bev’s debt rating from BBB to BBB-, citing higher debt and lower cash flow as the reasons for a weaker financial risk profile.

This downgrade by S&P is understandable as interest cover has fallen after the F&N acquisition.

While the F&N acquisition have strained the balance sheet, CIMB Research argues that Thai Bev is laying the groundwork for dominance of the beverage sector in Singapore, Malaysia and Thailand.

This makes the business more valuable in spite of balance sheet strains.

On the flip side, Thai Beverage can swap its 29% stake in F&N for cash plus F&N’s business with TCC.

If that happens, CIMB Research estimates net proceeds of S$1.2 bln could be used to pay down debt, reducing net gearing from 1.2 times to 0.8 times.

We have sent these questions to the company to invite them for an on-camera interview, and/or seek their written response.

Sofar, we have not had a reply (which is why you are seeing this message).

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