EM CEEMEA CREDIT: Anadolu Aefes: S&P downgrade and outlook negative

(AEFES: -/BB-neg/BB)

• We view the downgrade by S&P as expected and shouldn’t impact spreads. S&P’s assessment is not ground-breaking; the Co. had already deconsolidated the Russian business earlier in the year, and spreads have tightened following a messy Q1 and improved Q2 (see link: https://mni.marketnews.com/4fG8wjk).
• S&P lowered the Anadolu Aefes credit rating to BB with a negative outlook. The change in rating follows S&P assessment that the Co. is more reliant and correlated to the domestic Turkish economy following the forced transfer and deconsolidation of the Russian beer business, hence a two notch up lift from the sovereign rating is no longer warranted.
• The rating is still 1 notch above the sovereign but S&P views FCF highly contingent on domestic macroeconomic conditions, where inflation is high, competition strong and funding costs elevated. Excluding contributions from Coca-Cola Icecek (CCI), OCF for the beer group in 2025 will be negative up to TRY2.2-2.3bn following an estimated TRY5bn outflow in 2024 according to S&P. Capex to sales to remain high at 9% of sales, due to increasing capacity and maintaining market share, 51% beer. S&P factors in reducing borrowing rates in Türkiye to 20% by YE in 2026 and 37.5% by YE 2025.
• However, S&P believes management are committed to reducing leverage 3.7x at the end of 2025 above company target of 1-2x, by efficiencies and working capital management.