International Brewer Anheuser-Busch InBev 'A-' Rating Placed On CreditWatch Negative; 'A-2' Rating Affirmed

  • Anheuser-Busch InBev S.A./N.V.'s (ABI's) performance will be hit by the decline in out-of-home consumption of beer in many of its key markets, where COVID-19 is spreading.
  • Although ABI has planned disposals, we expect the pace of deleveraging to be slower than our earlier expectations.
  • We are therefore placing our 'A-' long-term issuer credit rating on ABI on CreditWatch with negative implications and we are affirming the 'A-2' short-term rating.
  • The CreditWatch indicates that we see downside risks arising for ABI from the negative impact of the COVID-19 outbreak, which we think will further pressure the group's ability to reduce debt and restore its credit metrics.
MILAN (S&P Global Ratings) March 26, 2020—S&P Global Ratings today took the rating actions listed above.
ABI's leverage remains elevated and the spread of COVID-19 will slow the pace of the company's deleveraging.  The CreditWatch reflects the heightened risk of weaker-than-anticipated deleveraging over 2020-2021. In our view, the uncertainties associated with recent events could negatively affect the company's earnings. We assume that ABI will receive about $11 billion from Asahi in the first half of this year as payment for the sale of its Australian subsidiary Carlton & United Breweries, and that it will use it to repay outstanding debt. Beyond this debt reduction, we were assuming further debt reduction coming from operating cash flow. We believe that the negative effects of the COVID-19 situation will hit the group's operating performance and this could result in ABI's S&P Global Ratings-adjusted debt to EBITDA remaining above 4x in 2020 and potentially in 2021, too.
We expect mainly those sales to bars, clubs, and restaurants to be affected, although retail sales might help compensate.   Owing to current measures adopted in most of the countries hit by COVID-19, we assume that many establishments will be closed for several weeks starting March 2020. ABI's "on-trade" sales (those happening in bars, clubs, and restaurants) will be severely cut by these measures, although part of this could be converted into "off-trade" (retail trade for consumption at home). ABI's management has assessed the negative impact of COVID-19 in China in January and February on its metrics as a reduction of $285 million revenue and $170 million in EBITDA. These numbers account for 4.4% of 2019 reported revenue and 7.4% of EBITDA in the Asia-Pacific region. At this stage, while it is very difficult to have a clear view of the overall magnitude and the length of the negative effects of the novel coronavirus, it is clear that the group's earnings and cash flows will suffer at least over the first half of 2020.
We see ABI's liquidity position as strong and its financial policy attitude continues to be conservative.  We note that ABI has already repaid part of its $5.5 billion debt maturities due in 2020, and the company has an expected cash payment for interest of about $4 billion spread throughout the year. This is backed by about $7 billion cash available at year-end 2019, $9 billion drawn under the revolving credit facility (RCF), and about $11 billion expected from the disposal of the Australian subsidiary. This gives ample headroom to manage financial maturities. ABI has expressed a strong commitment to deleverage and we factor this in, along with past evidence of a conservative financial policy that translated into a dividend cut and the sale of assets to support deleveraging.
We plan to resolve the CreditWatch placement when we have further information on the evolution and spread of COVID-19, the expected length of its effects on off-trade beer consumption, and any financial policy steps taken by management to accelerate the group's targeted debt profile improvements in 2020.
In resolving the CreditWatch, we will evaluate how the spread of COVID-19 is affecting ABI's revenue, operating performance, and cash flow generation.
We would consider affirming the rating if the decline in beer sales is limited and the decrease in on-trade sales is offset by off-trade consumption, and we think there will be a rebound in sales by the end of 2020. We assume the group will be reducing costs and taking financial policy measures to preserve cash, thereby maintaining our adjusted debt to EBITDA close to 4.0x in 2020.
We could downgrade ABI to 'BBB+' if COVID-19, and any resulting operating disruption and economic weakness, look likely to extend through 2020 and affect revenue and operating performance , in our view also into 2021. This would further pressure the group's ability to restore its credit metrics. In particular, we could downgrade ABI if its adjusted debt to EBITDA remains significantly higher than 4x and cash generation is cut by the adverse economic situation.
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