Fitch places Embotelladora Andina on rating watch negative following Andina's purchase of Coca-Cola bottler Ipiranga for approximately 1.2B reais

Nevin Barich

NEW YORK , July 12, 2013 (press release) – Fitch Ratings has placed the following ratings of Embotelladora Andina S.A. (Andina) on Rating Watch Negative:

--Long term local and foreign currency Issuer Default Rating (IDR) 'A';
--Senior unsecured notes 'A';
--Long-term national scale rating 'AA+(cl)';
--Senior unsecured notes 'AA+(cl)'.

KEY RATING DRIVERS

These ratings follow the announcement by the company that it has reached a definitive agreement to purchase Companhia de Bebidas Ipiranga (Ipiranga) for approximately BRL1.2 billion (USD538 million). Ipiranga is a Coca-Cola bottler that has bottling territories in the Brazilian states of Sao Paulo and Minas Gerais. In the announcement, Andina stated that Ipiranga generated BRL112 million of EBITDA during 2012 on revenues of BRL695 million. The transaction will be financed with debt and is subject to approval by The Coca-Cola Company and Brazil's anti-trust agency, Conselho Administrative of Defesa Economica' (CADE). Fitch views the approval from CADE and The Coca-Cola Company as highly likely.

If the transaction proceeds as announced, Fitch expects to downgrade Andina's international ratings to 'A-' and its national scale ratings to 'AA(cl)' at the closing of the transaction The downgrades would be a result of an increase in Andina's net leverage to approximately 1.9x on a pro forma basis. This degree of leverage is above average for the 'A' and 'AA+(cl)' rating categories and is high in relation to the 0.65x average net debt/EBITDA ratio maintained by the company from 2008 to 2012. The downgrades would also bring into consideration a more aggressive approach to inorganic growth by Andina. During October 2012, Andina merged with Coca Cola Polar, which had higher leverage. This acquisition came on the heels of the company's acquisition of a 40% stake in the Brazilian bottler Sorocaba Refrescos S.A. (Sorocaba) during August 2012 for BRL145 million.

During the LTM ended March 31, 2013, Andina generated CLP219 billion of EBITDA. This figure includes the consolidation of Coca-Cola Polar for only six months. If it had been included for 12 months, Fitch estimates Andina's LTM EBITDA would have been more than CLP240 billion. Andina's net debt as of March 31, 2013 was CLP242 billion. On a pro forma basis, treating the acquisition as being 100% financed with debt and before synergies, Fitch estimates Andina's net leverage to be slightly more than 1.9x.

Andina is one of the largest Coca-Cola bottlers in the world. It is the leading producer of soft drinks in Chile and the second largest producer in Brazil and Argentina. The company also has a strong presence in Paraguay. During 2012, Ipiranga sold 89 million unit cases of beverages. The Coca-Cola Company owns 14.65% of Andina's equity.

RATING SENSITIVITIES

Andina's ratings are likely to be downgraded by one notch if the transaction proceeds as planned. Fitch does not foresee Andina returning to as strong of a capital structure as was maintained in the past due to its more aggressive approach to inorganic growth. If Fitch believes that leverage could remain in excess of 2.0x for a sustained period of time, additional negative rating actions could occur.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 12, 2012).

Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

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Fitch Ratings
Primary Analyst:
Viktoria Krane, +1-212-908-0367
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Monica Coeymans, +56-2-499-3314
Director
or
Committee Chairperson:
Rina Jarufe, +56-2-499-3303
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings

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