"While TCC's offer for F&N does not have an immediate impact on Thai Bev's ratings, it raises additional uncertainty regarding the motivation of its controlling shareholder and its influence over the group's strategic direction," says Annalisa di Chiara, a Moody's Vice President and Senior Analyst.

"There is also uncertainty related to Thai Bev's role in the overall strategy and its potential exposure to non-core businesses, like real estate. These factors will also play a critical role in our assessment of the company's credit profile and the final rating outcome," adds Di Chiara, also the lead analyst for Thai Bev.

Last week, TCC Assets Limited announced that it would make a mandatory conditional cash offer for all of the issued and paid up ordinary shares of F&N that it does not already own directly or indirectly through Thai Bev. TCC's bid totals SGD8.8 billion (USD7.2 billion) in cash for the remaining 70% stake in F&N.

Under Singapore's merger & takeover laws, a bidder has to make a mandatory offer for a company if it buys a 30% stake.

Thai Bev's stake, including TCC's stake in F&N, reached 30.36% on 13 September, thus triggering the mandatory general offer.

Thai Bev also announced that it will not incur additional debt or expend funds to acquire more F&N shares or to make an offer for F&N. As such, TCC has stepped forward to acquire the additional F&N shares and undertake the F&N Offer.

To date, Thai Bev has spent around S$3.6 billion to acquire its own accumulated 28.9% stake in F&N, which has been largely funded with debt.

Based on Moody's calculations, the company's leverage position, as measured by debt/EBITDA, currently stands at around 3.5x, which is significantly higher than its historical level of less than 1x.

Thai Bev's ratings were placed on review on 19 July after it announced its purchase of a 22% F&N stake, which resulted in higher leverage. The review will focus on the company's plan to reduce leverage over the short term. Furthermore, the fate of Asia Pacific Breweries (APB), in which F&N has a 40% stake and which remains a strategic asset underpinning the transaction, still remains unclear. F&N shareholders will vote on the proposed sale of the APB stake to Heineken (Baa1 stable) on 28 September. Neither Thai Bev nor TCC have indicated how they will vote at the shareholder meeting.

"The outcome of this vote will play a critical role in our assessment of Thai Bev's future credit profile. Should Heineken's bid for APB be successful, we expect Thai Bev to use a portion of the sales proceeds to reduce debt on its balance sheet, which would be credit positive," Di Chiara says.

However, Thai Bev's increased exposure to unrelated businesses, like real estate, may also imply new execution risks and a more aggressive risk tolerance by management and thus adversely impact its business risk profile -- a credit negative.

Moody's will consider TCC Asset's cooperation and partnership with Thai Bev in consolidating effective control of F&N and providing oversight of the real estate businesses. The strategic fit of F&N's consumer beverage portfolio in the absence of APB, which owns the Tiger and Anchor beer brands, will also be assessed.

On the other hand, if Heineken's bid for APB is unsuccessful and F&N retains its current ownership of APB, this would be a credit positive for Thai Bev, given the revenue diversity and international expansion opportunities associated with APB's distribution network and its leading market presence in the fastest-growing regions in Asia.

However, these benefits may be outweighed by the weakening in the company's financial profile, as evidenced by leverage, defined as debt/EBITDA, in the 3.5x range. Moody's will also assess the overall growth strategy, the degree of oversight F&N would have over APB, any benefits that may accrue to Thai Bev over time, and the challenges of achieving the same.

Many elements of this transaction are still evolving, and there is no clarity at this time regarding the key credit factors, all of which will ultimately impact the company's financial position, growth strategy, and business composition.

The principal methodology used in rating Thai Beverage Public Company was the Global Alcoholic Beverage Rating Methodology published in September 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Thai Beverage Public Company Limited is the leading producer of beer and spirits in Thailand. The company has a large distribution network of 93 sales offices, covering 400,000 point of sales over the country. Thai Bev was listed on the Singapore Exchange in 2006.

Annalisa Di Chiara Vice President - Senior Analyst Corporate Finance Group Moody'sInvestors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Philipp L. Lotter MD - Corporate Finance Corporate Finance Group JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (65) 6398-8308 Releasing Office: Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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