SANTIAGO, Chile--()--Fitch Ratings has affirmed the following ratings of Embotelladora Andina S.A. (Andina):
--Long term local and foreign currency Issuer Default Rating (IDR) at 'A';
--Long-term national scale rating at 'AA+(cl)';
--Senior unsecured notes at 'AA+(cl)';
--Equity rating at 'Primera Clase Nivel 2(cl)'.
Additionally Fitch has assigned an 'AA+(cl') to Bond Lines N422, N640 and N641 and bond programs issued under these lines. These notes were originally issued by Kopolar and after the merger are held by Andina. In conjunction with these rating actions, Fitch has affirmed and withdrawn the 'Primera Clase Nivel 4 (cl)' equity rating and withdrawn the long-term national scale rating for Embotelladora Coca-Cola Polar S.A (Kopolar).
The Rating Outlook is Stable. A complete list of ratings is provided at the end of this release.
These rating actions follow the completion of the merger by absorption of Kopolar into Adina's operations on Oct. 1, 2012. Andina is the continuing legal entity, owner of all rights and liabilities formerly owned by Kopolar.
The ratings consider Andina's strong business position in Latin America, its sound and stable operational cash flow generation and solid financial profile. The company's ratings also factor in its geographical diversification with leading market positions in the countries it operates and the solid fundamentals of the beverage industry in Latin American markets.
Andina's ratings are constrained by ongoing challenges related to integrating recently merged operations as well as maintaining sound market share in a competitive environment. Andina's ratings also consider the financial and operational risks of the company's business in Argentina and Paraguay, which represent near 20% and 10%, respectively of combined EBITDA on pro forma basis as of Sept. 30, 2012.
Strong Credit Profile After The Merger
Andina will continue to maintain strong credit metrics after the merger, with an estimated 1.0x debt/EBITDA and 0.8x Net debt/EBITDA on pro forma basis as of Sept. 30, 2012. These ratios are above Andina's pre-merger leverage ratios of 0.7x and 0.5x, respectively, but are still well into the rating category.
Further improvements in operational performance may arise from expected synergies in the range of USD25 million to USD30 million annually, and improvement of margins in Argentina when applying Andina's business know how.
Fitch expects that the company will be able to maintain a net debt/EBITDA below 1.2x absent of inorganic growth. Free Cash Flow is expected to remain moderately negative, which could be financed with cash given the company's liquidity position.
Diversification and Business Position
Andina is the second largest Coca Cola bottler in Latin America and the seventh largest Coca Cola bottler on global basis. The merger is seen as favorable for Andina as it extends its coverage in territories with strong market shares. On pro forma basis, Andina generated CLP233 billion EBITDA, with 690 million annual unit cases in a 48 million of habitant's franchised territories as of Sept. 30, 2012. Chile accounted for 39% of EBITDA, followed by Brazil with 34%, Argentina around 20% and Paraguay near 10%.
In Chile Andina is the #1 Coca Cola bottler. In Argentina and Brazil it is #2, and in Paraguay it is the sole Coca Cola bottler. Andina's Chilean bottling territory has near 9 million of habitants. It includes the Metropolitan Region, and after the merger, it was added the extreme south and northern zone of Chile. Andina has an average 70% market share and per-capita consumption is the second highest in Latin America, after Mexico, with 487 8-ounces bottles per year.
The Brazilian market is the second most important market for Andina. With near 18 million of habitants in its franchised territories, Andina has 57% market share, followed by AmBev with close to 20%. Per capita consumption is relatively low with 275 8-ounces bottles. In Argentina, Andina's bottling territories have a population of near 14 million of habitants. Andina is the largest bottler in its territories with a market share between 57% and 60%. Per-capita consumption is relatively low in the range of 250 to 300 8-ounces bottles, depending on the zone. In Paraguay, Paraguay Andina is the sole Coca Cola bottler with 61% market share. During 2011 and 2012, competition has intensified due to the entrance of Pepsi Co. after six years of absence.
Andina has CLP239 billion combined debt on pro forma basis as of Sept. 30, 2012 of which CLP176 billion are in the long term and CLP62 billion are in the short term. Long-term debt mainly relates to CLP128 billion bonds issued in the local market and the balance mainly corresponds to bank debt. Long-term debt has a manageable amortizing profile. Liquidity position is sound with CLP53 billion, which covers 85% total short-term debt and maturities.
Ratings could be negatively affected if the sovereign environment in Argentina and Paraguay deteriorates significantly and/or if there is a sharp increase in debt for acquisition finance, which materially deteriorates the company's credit metrics.
Fitch affirms the following:
--Local currency and foreign currency Long-term Issuer Default Rating (IDR) 'A';
--National scale rating long-term 'AA+(cl)';
--National scale Equity Rating at 'Primera Clase Nivel 2';
--Senior Unsecured Notes at 'AA+(cl)'
--Senior Unsecured Note due 2027 at 'A(cl)'.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 12, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology