Lion beer to raise Rs 3 bln from stock market
View(s):Lion Brewery (Ceylon) PLC, Sri Lanka’s largest beer brewer (Lion beer), is planning to raise Rs 3 billion from the Colombo stock market through a debenture issue, according to a rating agency.
Fitch Ratings said it has assigned an expected National Long-Term rating of ‘AA-(lka) (EXP)’ to Lion’s proposed unsecured redeemable debentures.
It also assigned ‘AA-(lka)’ National Long-Term Rating with a ‘Stable Outlook’.
The rating agency said Lion’s ratings reflect its leading market share of the domestic beer industry and its strong operating cash flow generation. “Lion’s market position and in turn its credit profile are also supported by its entrenched domestic brands, and limited substitution of its products due to the high technical competence required for brewing beer in contrast to the manufacturing of spirits,” the statement said.
But it was noted that domestic producers of alcoholic beverages face high regulatory risk in the form of high excise duties, which puts legitimate alcoholic beverages outside the reach of a large portion of the population, promoting illicit consumption while stifling the growth of the licit market. At the same time, however, regulatory restrictions on advertising and the limited issuance of new retail licenses create high entry barriers and benefit entrenched players such as Lion. Continued increase in excise duties on alcoholic beverage producers could become a rating risk if profitability is impacted materially over the longer term, Fitch said. In terms of growth, it was noted that Lion’s ratings are constrained over the medium-term by the limited breadth and depth of the domestic beer market, given regulatory impediments on advertising and retailing. However, economic growth and lifestyle changes may result in a shift in domestic consumption patterns towards beer over the longer-term.
“Lion’s product portfolio is diverse across price points which enables the company to cater to potential changes in consumer behavior and makes Lion attractive to its distributors. Lion’s sales reflect industry trends, and are skewed towards its strong beer product, which is targeted towards the mass-market consumer.
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