(The following statement was released by the rating agency)
Dec 11 -
-- The shareholders of South African food manufacturer Foodcorp (Proprietary) Ltd. have entered into a binding agreement to sell the company to Rainbow Chicken Ltd., which is part of Remgro Ltd.
-- There are significant uncertainties related to the transaction, Foodcorp’s future financial policy, and the impact of the new shareholder’s credit quality on Foodcorp.
-- We are placing our ‘B-’ rating on Foodcorp on CreditWatch with developing implications, pending the completion of the transaction.
On Dec. 11, 2012, Standard & Poor’s Ratings Services placed its ‘B-’ long-term corporate credit rating on South African food producer Foodcorp (Proprietary) Ltd. on CreditWatch with developing implications. Developing implications indicate that we could raise, lower, or affirm the ratings.
Foodcorp’s shareholders have announced that they have entered into a binding agreement to sell 64.2% of the company’s issued share capital to Rainbow Chicken for South African rand (ZAR) 1,037 million. Foodcorp management is retaining a 23.9% holding and will continue to manage the company following the acquisition. The transaction remains subject to a number of suspensive conditions, including obtaining the necessary regulatory approvals. Rainbow Chicken is South Africa’s largest processor and marketer of chicken.
We view the impact of this transaction on Foodcorp’s ratings as uncertain, given the lack of information we have at the moment. Any rating action will depend on the transaction’s funding and its effect on the company’s debt once the transaction is completed. The terms of Foodcorp’s notes outstanding include a redemption option for noteholders upon change of control, at a price equal to 101% of par of the notes outstanding plus accrued and unpaid interest. We have no specific information at this time regarding the intentions of Rainbow Chicken or of noteholders.
Our action will also depend on our assessment of the creditworthiness of Rainbow Chicken and its parent company Remgro Ltd., both of which Standard & Poor’s do not rate.
A change in shareholding structure could increase Foodcorp’s debt, a company that was already subject to a leveraged buyout in 2005. At the same time, we acknowledge that Rainbow Chicken is planning a rights issue fully underwritten by its parent company Remgro Ltd. to help finance strategic growth opportunities, including the Foodcorp transaction.
We will resolve the CreditWatch upon completion of the transaction. Any rating action will be subject to clarification of Foodcorp’s financial policy, including investment plans, liquidity management, target leverage levels, and degree of integration within Rainbow chicken. Our analysis will factor in our assessment of the creditworthiness of the combined Rainbow Chicken and its parent company Remgro. We expect that an upgrade or downgrade would be limited to no more than one notch, unless we affirm the ratings.
Related Criteria And Research
-- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
-- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
-- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008
Ratings Affirmed; CreditWatch/Outlook Action
Foodcorp (Proprietary) Ltd.
Corporate Credit Rating B-/Watch Dev/-- B-/Stable/--
Senior Secured B-/Watch Dev B-
Recovery Rating 4 4