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Rating action

Scope Ratings GmbH (Scope) has today affirmed its BB-/Negative issuer rating on Georgian Beer Company JSC (GBC). Scope has also affirmed the company’s BB- senior unsecured debt rating.

Subsequently, Scope has withdrawn all ratings assigned to Georgian Beer Company JSC.

Rating rationale

The affirmation is based on the robust operational performance, as evidenced by the organic revenue growth of the company's key product portfolio, resulting in EBITDA of GEL 26m (up from GEL 23m in 2022), as confirmed by the company's preliminary results.

The maintenance of the Negative Outlook reflects Scope’s expectation that leverage, as measured by Scope-adjusted debt/EBITDA, will remain elevated due to the additional financial guarantees that were required to buy out minority shareholders in 2023. 

Scope has withdrawn all ratings assigned to Georgian Beer Company JSC, following the business decision to cease analytical coverage.

The process of identifying and integrating strategic shareholders who are willing to substantially preserve the company's financial policy, as demonstrated in recent years through its organic growth strategy, gradual expansion of the new product portfolio, prudent management of indebtedness, and moderate capital expenditure, will take time and may hinder a timely recovery of the credit metrics. The next six months will be critical in providing greater clarity and visibility on the capital structure and the strategy for operational expansion. In addition, the issuer rating continues to benefit from the company's prudent debt management and continued absolute EBITDA growth through organic expansion both domestically and internationally. This provides additional assurance that the company will be able to address shareholder-related issues in the short term.

GBC’s business risk profile (assessed at BB-) continues to benefit from its exposure to the non-discretionary consumer products industry. Despite facing fierce competition in the saturated Georgian beer market, GBC will maintain a strong competitive position due to the robust underlying demand for its existing product portfolio, complemented by the ramp-up of its international brand portfolio. Growth will also be supported by a strong commercial relationship with a fast-growing retail chain, which will underpin GBC's sales and increase its negotiating leverage with other key customers.

GBC’s financial risk profile (assessed at B+) is constrained by its high leverage, including the financial guarantees issued in FY2023 for the minority shareholder buyout. The GEL 25m maturing at the end of 2023 has been fully refinanced by long-term bank loans, which hasn’t affected the company’s financial risk profile.

Outlook

The Negative Outlook reflects the elevated leverage metrics, as indicated by a Scope-adjusted debt/EBITDA ratio exceeding 4.0x following a shareholder buyout in 2023. This buyout also creates uncertainty about the company's ability to reduce debt over the next 12 months.

Long-term debt rating

Scope has affirmed the senior unsecured debt at BB-, in line with the issuer rating.

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for these Credit Ratings and/or Outlook, (General Corporate Rating Methodology, 16 October 2023; Consumer Products Rating Methodology, 3 November 2023), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings and/or Outlook were not amended before being issued.
 
Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Zurab Zedelashvili, Associate Director
Person responsible for approval of the Credit Ratings: Thomas Faeh, Executive Director
The Credit Ratings/Outlook were first released by Scope Ratings on 30 March 2018. The Credit Ratings/Outlook were last updated on 4 October 2023.
 
Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings.
 
Conditions of use/exclusion of liability
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