BUD Anheuser Busch Inbev SA NV

By Carol Ryan 

Covid-19 is a perfect storm for Budweiser's owner. But after holding its own in the first quarter, the company is under less pressure to sell assets in a weak market as it grapples with a heavy debt load.

Anheuser-Busch InBev on Thursday said it sold 9.3% less beer globally in the three months through March compared with the same period of 2019. Yet the business managed to grow its top line in the key U.S. market, where consumption is shifting from closed bars and restaurants to consumers' homes. And although the amount of beer sold in China almost halved in the first quarter, volumes started to recover in April.

It could have been worse, and AB InBev's shares were up 5% in early European trading. However, the stock is still down 44% this year compared with declines of roughly one-fifth at smaller brewing rivals Heineken and Carlsberg. The issue, unsurprisingly, is AB InBev's $80 billion-plus debt load.

The pandemic makes it tough to pay that down. While most of AB InBev's borrowings are issued in euros and dollars, 60% of the company's sales are made in emerging markets where currencies have weakened. Its ratio of net debt to earnings before interest, taxes, depreciation and amortization is expected to jump to 6.1 times this year according to analysts at Jefferies, up from 4.5 times at the end of 2019.

Although investors are now allergic to that level of leverage, it isn't the right time to sell assets to raise cash. Getting borrowings down to more acceptable rates of, say, three times Ebitda, would require AB InBev to find around $26 billion. It could sell down stakes held in the company's separately listed South American business AmBev or the recently listed Asian division. However, the former's shares are down 37% this year and AB InBev wants to hang on to equity in the Asia business to do regional deals in the future. A rights issue at the current share price is also deeply unappealing.

The need to fix AB InBev's balance sheet is pressing and will remain a dead weight on the company's shares. It has enough cash to meet its needs for around 24 months, though, and only $3 billion of its debt matures between now and the end of 2021. Ideally, demand for beer will recover quickly next year and allow the company to get its deleveraging plans back on track. But it also needs exchange rates to move in its favor.

The hangover needs to be dealt with eventually, but the company's best hope is to delay any drastic moves until the worst of the pandemic is over.

Write to Carol Ryan at carol.ryan@wsj.com

(END) Dow Jones Newswires

May 07, 2020 09:32 ET (13:32 GMT)

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