Thursday, October 20, 2011

RAM: F&N to weather impact of Thai floods

KUALA LUMPUR: RAM Rating Services is monitoring the flood situation in Thailand, which has affected Fraser and Neave Holdings Bhd's dairy plant.

It had on Thursday, Oct 20 cited F&N's announcement that its plant in Rojana Industrial Park, Ayutthaya, had ceased production following severe flooding.

'At this juncture, the extent of the damage is still unknown as employees have yet to gain access to the facility. Similarly, it is uncertain whether F&N Holdings can resume operations there in the immediate term,' it said.

RAM Ratings noted that the affected plant accounted for about 25% and 15% of the group's revenue and profit, respectively.

'While we understand that F&N Holdings has insurance coverage on its Thai-based facility, it is too early to determine the success of its claims and the timing of the corresponding insurance compensation.

'For now, the group will increase production at its Petaling Jaya dairy plant and also source from other suppliers to help cater to demand from Thailand. However, this may cause its Thai-based facility to operate at a loss due to heftier logistics costs although this may be compensated under the insurance policy,' it said.

RAM Ratings said due to the group's robust financial profile, it should have sufficient headroom to weather this temporary disruption.

However, its concern was that a prolonged state of such affairs that could lead to loss of market share or deterioration in its financials might have negative impact on the group's credit profile.

RAM Ratings said it would reassess F&N Holdings' credit profile upon more clarity on this issue.

F&N Capital Sdn Bhd is a treasury company wholly owned by F&N Holdings. F&N Capital's RM1 billion commercial papers/medium-term notes programme (2008/2015) (CP/MTN) currently carries AA1(s)/P1(s) ratings from RAM Ratings.

The CP/MTN is backed by a corporate guarantee from F&N Holdings. As such, the debt ratings are based on the credit-risk profile of F&N Holdings as a group.

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