Beermaker Efes No Match for Putin Faces Downgrade: Turkey Credit

Beermaker Efes No Match for Putin Faces Downgrade: Turkey Credit

Turkey’s biggest brewer risks losing an investment-grade rating as government officials at home and in Russia, its two largest markets, clamp down on alcohol sales and consumption. The yield on Anadolu Efes Biracilik & Malt Sanayii AS (AEFES) dollar bond due November 2022 surged 57 basis points in the past month to 5.79 percent on Nov. 22 amid alcohol restrictions in Turkey and as the company said Nov. 14 that it will stop brewing beer in Moscow from Jan. 1. That compares with an 11 basis-point gain in JPMorgan Chase & Co’s CEMBI Consumer Index.Turkey imposed on Sept. 9 a night-time ban on sales of alcohol from shops and kiosks following a law earlier this year restricting promotion of alcohol, adding warning labels and outlawing sales near mosques and schools. In Russia, higher excise taxes and restrictions on beer sales have crimped revenue after the government passed laws curbing consumption. Moody’s Investors Service changed its credit rating outlook on Istanbul-based Efes to negative on Nov. 20.

“Revenue generation and profit margins are issues,” Neslihan Yilmaz, a trader at Maxis Securities in London, said in a phone interview Nov. 22. “The possibility of a downgrade could have a negative impact on Anadolu Efes’s outstanding bond issue and lead to a repricing of risk.”

Russian Market

In its note Moody’s cited “depressed” financial and operational performance and warned it could cut the rating next year unless the brewer took steps to improve it.

Moody’s at the same time affirmed Efes’s Baa3 rating, the lowest investment-grade, on its $500 million bonds due November 2022. The rating benefits from Efes’s equity investment in Coca-Cola Icecek AS, the Baa3-rated unit owned by Coca-Cola Co. and Efes’s parent Anadolu Endustri Holding AS, Moody’s said.

Standard & Poor’s has an equivalent BBB- rating on Efes with a stable outlook, according to data compiled by Bloomberg. Fitch Ratings hasn’t assigned a grade to the company.

The company’s decision to close a brewery in Moscow was part of efforts to counter slowing sales, Efes said in an e-mailed response to questions today. Russia’s beer market will register declines in the “low-double digits,” while Turkey’s will drop by “high-single digits” this year, it said.

Beer Sales

Efes sales in the first nine months of this year retreated 10 percent in Russia, which accounts for 45 percent of its global market, according to Moody’s. Its share in Russia declined “over-proportionally when compared to the wider market” because some Russian retailers dropped Efes products after price negotiations, the ratings company said.

“Despite the unfavorable market conditions in both Turkey and Russia, we are taking all necessary measures to counterbalance these negative impacts to our performance,” Efes said today.

The company bought SABMiller Plc (SAB)’s Russian operations in 2012 in a $1.9 billion deal, in which the London-based brewer acquired a 24 percent stake in the Turkish company. Efes, whose market share in Russia fell to 13.5 percent by the end of September from 16.1 percent a year earlier, according to Moody’s, competes with Carlsberg A/S (CARLB), Anheuser-Busch InBev NV (ABI) and Heineken NV (HEIA) in the country.

“Efes may opt to increase its prices for some premium brands with an eye on market share in order to improve margins,” Melda Agirdas, an analyst for Istanbul-based Finansinvest, said in an e-mailed note Nov. 22.

Turkish Outlook

In Turkey, where Efes sales volumes fell 12.2 percent in the nine months through September, the brewer has a 77 percent market share, according to a Nielsen report cited by Moody’s. The remainder is held by Turk Tuborg (TBORG), owned by Carlsberg’s Israeli partners CBC Group.

“Contractions in volumes in Turkey will continue in the first half of next year,” Agirdas said. “In the remainder of next year, I expect flat sales in volumes.”

The yield on two-year lira government notes fell six basis points, or 0.06 percentage point, to 8.95 percent at 4:19 p.m. in Istanbul. The lira rose 0.1 percent to 2.0028 per dollar, paring its drop this year to 10.9 percent.

Shares in Efes slid 4.7 percent since the brewer announced its intention to stop making beer in Moscow, taking this year’s drop to 13 percent.

“The company was a bit late in responding to changing market dynamics and competitive pressures, partly due to the merger process with SAB Miller” in Russia, Kenan Cosguner, an analyst at BNP Paribas SA’s Istanbul unit, said in e-mailed comments Nov. 22. Next year will see “tougher competition in Russia.” he said.

To contact the reporter on this story: Ercan Ersoy in Istanbul at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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