Bangkok--8 Jun--TRIS Rating
TRIS Rating Co., Ltd. has affirmed “AAA” ratings to the guaranteed debentures of Unilever Thai Trading Ltd. (UTT or Issuer) with “stable” outlook. These debentures are guaranteed by UTT’s ultimate parent company, Unilever N.V. (Guarantor), a company rated “A+” and “A1” by Standard & Poor’s (S&P) and Moody’s Investors Service (Moody’s), respectively. The issue ratings continue to reflect the credit quality of the Guarantor. Although the Guarantor shall not be liable for the guaranteed debentures in the event that the Issuer is prevented from the punctual payment of any moneys payable because of the intervention of any Thai government agency or the expropriation or nationalization of the assets of the Issuer, TRIS Rating believes that the likelihood of such an event is small.
The “stable” outlook of UTT’s debentures is derived from the credit profile of Unilever N.V., its Guarantor. S&P and Moody’s assigned the ratings of “A+/Stable” and “A1/Stable”, respectively, to Unilever N.V. The Guarantor’s outlook is based on TRIS Rating’s expectation that Unilever will maintain its financial profile, strong cash generating ability, and market position. Unilever’s improving cash flow can be achieved through its product mix, cost-cutting program and higher contributions from markets outside Europe.
TRIS Rating reported that under the guarantee agreement, the Guarantor irrevocably and unconditionally guarantees to make full and punctual payment of any amount due as if it were the principal debtor. The guarantee’s terms, which specify the unconditional and irrevocable payment with waiving notice of acceptance by the Guarantor, will continue and remain in operation until all moneys owed by the Issuer in respect of the debentures is paid. The guarantee agreement is governed by the laws of England. Unilever N.V. is a public company registered in the Netherlands, while Unilever PLC is a public company registered in England (together, the two parent companies are referred to as the “Unilever Group” or simply “Unilever”). The two companies practically operate as a single entity. As they have the same directors and are linked by a series of agreements, the two companies currently have equal credit standings from S&P and Moody’s. Unilever’s ratings reflect its diversified leading brand portfolio and geographic diversity. The ratings also take into account the strength of Unilever’s distribution channels in developing markets, which have high growth. Nevertheless, these supporting factors are partially offset by Unilever’s financial profile, which is relatively weak within the rating category, and relatively low profitability compared with its peers. The supporting factors are also considered to be constrained by Unilever’s relatively high exposure in slow growth rate markets in Europe and its low-growth product categories (e.g. food).
TRIS Rating said, Unilever had maintained “AAA” and “Aaa” credit ratings from S&P and Moody’s, respectively, for a long time before being downgraded to “A+” and “A1” in 2000 because of high leverage and weakening cash flow adequacy following a number of acquisitions in 2000, especially the debt-financed acquisition of Bestfoods. However, total debt as a percentage of capitalization has been significantly reduced to 42.4% at the end of 2006 from 58.6% at the end of 2005. Unilever sold its European frozen food division in the fourth quarter of 2006 generating net proceeds of EUR1.2 billion, some of which was used for debt repayment. Given that the company plans no additional major acquisitions and its conservative financial policy remains in place, Unilever’s ratings are not expected to change.
TRIS Rating also said that on 7 November 2005, UTT was amalgamated with Unilever Bestfoods (Thailand) Ltd. (UBF). Both companies are subsidiaries of the Unilever Group. Consent was given by the Guarantor to make the transfer of debt to the amalgamated company deem to be a novation. It is agreed that the guarantee condition will still be in force.