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Fitch Places Bidvest on Rating Watch Negative on Proposed Unbundling
May 26, 2016 / 3:42 PM / a year ago

Fitch Places Bidvest on Rating Watch Negative on Proposed Unbundling

(The following statement was released by the rating agency) LONDON, May 26 (Fitch) Fitch Ratings has placed The Bidvest Group Limited's (Bidvest) National Long-Term Rating of 'AA(zaf)' on Rating Watch Negative (RWN). A complete list of rating actions follows at the end of this commentary. The RWN reflects Bidvest's plan to de-merge the foodservice operations from the existing Bidvest group. The RWN reflects our expectation that the continuing Bidvest operations, holding only Bidvest's industrial operations, will have a weaker business risk profile following separation. Fitch expects to resolve the RWN once Bidvest (excluding the foodservice business) publishes their audited annual results for financial year to June 2016. KEY RATING DRIVERS Economic and Ownership Separation Fitch expects Bidvest's industrial and food operations to be fully separated both economically and through ownership. The respective entities consisting of these operations will be separately listed on the Johannesburg Stock Exchange. The residual industrials business, largely comprising the Bidvest South Africa, Bidvest Namibia and Corporate divisions, will remain within the currently listed Bidvest entity. Weaker Business Risk Profile Fitch expects the split will increase the sector, business and financial risks for the remaining Bidvest group. Fitch could downgrade the rating by up to two notches (given currently available information for the remaining Bidvest group), based on the rating agency's analysis of the business risk and indicative pro-forma financial information provided in BidCorp's pre-listing statement and circular. Fitch has previously noted that the combined group's rating is supported by the diversified and balanced operational profile and geographically-spread revenue stream, which was largely driven by the defensive food services division counterbalancing the more cyclical automotive and freight segments. Fitch views the remaining Bidvest group industry segments as more volatile and less geographically diverse than the more defensive food services division. Commensurate Financial Structure Fitch will analyse the remaining Bidvest group using its Diversified Industrials and Capital Goods methodology. Based on the available pro-forma information, Fitch expects the financial structure to result in largely similar leverage metrics and slightly lower coverage metrics. However, the financial structure of the remaining Bidvest group is expected to be impacted by negative or marginally positive free cash flow (FCF). KEY ASSUMPTIONS Fitch's key assumptions within the rating case for Bidvest include: - Approximated historical pro-forma information for the unbundled Bidvest group by adjusting previous historical audited numbers (FY13-FY15) for Bidvest group by the unaudited pro-forma BidCorp results as provided by the group in the pre-listing statement - Low- to mid-single digit revenue growth expectations for FY16-FY19 - Stable margins compared with FY15 performance - No change to dividend cover policy expected, but quantum adjusted to reflect foodservice unbundling RATING SENSITIVITIES The ratings will likely be downgraded once the food service operations have been de-merged and we have updated our financial metrics following the publication of the FY16 results. A positive rating action is not envisaged. New rating sensitivities will be established after resolving the RWN. SUMMARY OF FINANCIAL STATEMENT ADJUSTMENTS - Leases: Fitch adjusted the debt by adding 6x of yearly operating lease expense related to long-term assets; and - Other: Fitch excluded income from investments in its EBITDA calculation. FULL LIST OF RATING ACTIONS Fitch has placed the following ratings on RWN: The Bidvest Group Limited: National Long-term Rating: 'AA(zaf)' on RWN National Short-term Rating: 'F1+(zaf)' on RWN Bidvestco Limited: National senior unsecured long-term rating: 'AA(zaf)' on RWN Contact: Principal Analyst Yeshvir Singh Associate Director +44 20 3530 7810 Supervisory Analyst Richard Barrow Director +44 20 3530 1256 Fitch Ratings Limited 30 North Colonnade London E14 5GN Committee Chairperson Paul Lund Senior Director +44 20 3530 1244 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. Applicable Criteria Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015) here National Scale Ratings Criteria (pub. 30 Oct 2013) here Additional Disclosures Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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