TRIS Rating States Acquisition of “Greyhound” and “Greyhound Caf?” by “SST” Has No Effect on SST’s Credit Rating

On 22 July 2014, Sub Sri Thai PLC (SST) announced it had acquired all the outstanding shares of Greyhound Co., Ltd. and Greyhound Caf? Co., Ltd. for a total value of Bt1,853.80 million. SST’s rating is unlikely to change in the near term, given the company’s financing arrangement and planned business divestment within the second half of 2014.

SST acquired the 100% of both Greyhound and Greyhound Caf? through its wholly-owned subsidiary, Mudman Co., Ltd. (Mudman). The transaction was funded with Bt1,265.80 million in debt and Bt588 million in newly-issued shares of Mudman. Mudman will issue 2.11 million new common shares at Bt444.662 per share, allocated to Greyhound’s founder group and Khonkaen Sugar Industry PLC (KSL). As a result, SST’s shareholding in Mudman was diluted to 75%. Greyhound’s founder group and KSL hold 16% and 9% of Mudman, respectively. The equity injection of Bt350 million from KSL will be reserved for the working capital. The new debt of Bt1,300 million needed to pay for the acquisition is secured by a bank loan and a loan from Greyhound’s founder group.

In addition, SST is setting up the Sub Sri Thai Smart Storage Fund, a property fund created to purchase document storage warehouses. The investment will be worth Bt818 million. SST will invest for 15% of the fund or Bt120 million. SST is expected to receive Bt650 million in net cash from this transaction which will be used to repay the loan from Greyhound’s founder group. SST will soon finish divesting its loss-making soybean and vegetable oil business. The proceeds from the divestment will be used to pay off debts of nearly Bt800 million.

After all these transactions, SST's financial profile will be in line with TRIS Rating’s previous expectation which incorporated the sales of soybean and vegetable oil business. The new investment with partly equity funded helps maintain the capital structure in the level committed. At the end of 2014, SST's total debt is expected to slightly decrease to approximately Bt1,850 million. Together with an equity injection of Bt938 million, the debt to capitalization ratio is expected to fall from over 60% to around 50%. Onward, TRIS Rating views that the newly-acquired brands offer good growth prospects and will strengthen SST’s food business in the future. The success of transition remains to be proven.

Greyhound operates 17 fashion outlets under the “Greyhound” and “Playhound” brands in Thailand and also exports to South Korea, Singapore, and Indonesia. Greyhound Caf? operates 10 restaurants under the names “Greyhound Caf?”, “Another Hound Caf?”, “Sweet Hound”, and “Ground-hey”. In 2013, Greyhound and Greyhound Caf? reported combined revenues of Bt800 million. This acquisition not only expands SST’s food business, but also adds new self-owned brands to its portfolio. SST believes the brands have potential to expand domestically and abroad.

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