Japan: Banks showing strong interest in financing loan for Asahi’s acquisition of Carlton & United Breweries

Japanese and international banks are showing strong interest in a takeout financing of a ¥1.2 trn (US$11.1 bln) bridge loan that is funding Asahi Group Holdings’ proposed acquisition of the Australian operations of Anheuser-Busch InBev, Reuters Africa reported on August 2.

The Japanese beer and soft drink giant is in discussions with banks on a longer-term takeout of the bridge Sumitomo Mitsui Banking Corp provided in support of the A$16 bln (US$11.3 bln) purchase of AB InBev subsidiary Carlton & United Breweries.

Lenders are eyeing the opportunity to get a piece of the action on the longer-term takeout, the bulk of which is expected to be in the form of a loan.

“SMBC did well to bag the sole mandate on the bridge. However, the takeout will provide opportunity for other lenders to showcase their strength and support,” said one banker at an international lender.

“The huge size of the debt means that the takeout will have to be syndicated.”

The bridge is denominated in yen, but the takeout could come in other currencies depending on what terms Asahi is able to extract from lenders.

“We may have opportunities if the loan is denominated in Aussie dollars. It also depends on pricing. It would be hard if it is priced at corporate loan level,” said another banker at a non-Japanese bank.

The strong interest from lenders is not surprising given the high-profile nature of the deal and the potential for ancillary business. Asahi’s proposed acquisition will catapult it into third position among the world’s biggest brewers behind AB InBev and Heineken.

It will increase the Ebitda of Asahi’s Australian business to around ¥100 bln, adding to the ¥200 bln and ¥100 bln of Ebitda that its Japanese and European businesses generate, respectively.

It will also lead to an increase in Asahi’s net debt/Ebitda to over four times in the short term and a deterioration in other financial metrics such as debt-to-equity and capitalisation ratios. Following the announcement of the acquisition, Moody’s placed Asahi’s Baa1 ratings under review for downgrade.

“This large, mostly debt-financed acquisition will significantly raise Asahi’s financial leverage,” says Moody’s vice president and senior credit officer Motoki Yanase.

According to the rating agency, the acquisition will almost double Asahi’s total debt of ¥1 trn at the end of 2018, while the acquired business’s revenue will account for only about a tenth of the group’s revenue.

The extra leverage means capital markets opportunities will arise as Asahi looks to improve its financials. It has already announced it would be raising ¥300 bln through equity and subordinated debt. It has completed the shelf registration for issuance of common shares (up to ¥200 bln).

The takeout is Asahi’s first acquisition financing in two years. In early 2017, the company raised €7.4 bln (US$8.33 bln) in bilateral bridge loans from SMBC and Mizuho Bank to finance its €9.85 bln purchase of AB InBev’s Eastern European business as well as the Grolsch and Peroni brands.

Should the takeout loan be syndicated before the end of the year, it would also lift sagging loan volumes in Japan. In the first six months of 2019, Japan transacted 966 loans for a total of US$113 bln, a 7.3% year-on-year drop, according to Refinitiv LPC data.

In June 2018, a single loan – Takeda Pharmaceutical’s US$30.85bn financing backing its £46 bln (US$62 bln) acquisition of London-listed rare-disease specialist Shire – had boosted lending volumes after attracting a slew of domestic and international banks.

The decline in lending this year is mainly due to a stagnant domestic economy and tepid acquisition activity from Japanese companies. The country’s M&A volume for the first half of 2019 stalled to ¥8.6 trn (US$78.7 bln), a 66.2% drop compared to the same period last year, according to Refinitiv data.

E-malt.com, the global information source for the brewing and malting industry professionals. The bi-weekly E-malt.com Newsletters feature latest industry news, statistics in graphs and tables, world barley and malt prices, and other relevant information. Click here to get full access to E-malt.com. If you are a Castle Malting client, you can get free access to E-malt.com website and publications. Contact us for more information at marketing@castlemalting.com .