Fitch Places Coca-Cola Amatil on Rating Watch Evolving Following Merger Announcement

(The following statement was released by the rating agency) Fitch Ratings-Sydney-02 November 2020: Fitch Ratings has placed Australia-based Coca-Cola Amatil Limited's (CCL) Long-Term Issuer Default Rating (IDR) of 'BBB', senior unsecured rating of 'BBB' and Short-Term IDR of 'F2' on Rating Watch Evolving (RWE). This follows CCL's announcement that it received a non-binding proposal from Coca-Cola European Partners plc (CCEP; BBB+/Rating Watch Negative) to acquire all the issued shares in CCL held by independent shareholders by way of a scheme of arrangement and the separate acquisition of the shares held by The Coca-Cola Company (NYSE:KO) (Coca-Cola, A/Stable). Key Rating Drivers Rating Watch Evolving: CCL's rating could be upgraded, affirmed or downgraded depending on our assessment of its linkage with CCEP should the proposed transaction go ahead. We will re-assess CCL's credit profile based on our Parent and Subsidiary Rating Linkage Criteria after resolving CCEP's Rating Watch Negative. Implied Support: CCL's rating benefits from a single-notch uplift from its Standalone Credit Profile (SCP) of 'bbb-' to reflect its close strategic ties with Coca-Cola. We consider legal and operational ties between Coca-Cola, CCL's main shareholder with a 31% share, to be weak. This view also reflects that Coca Cola nominates only two of CCL's nine board members. Reassessment of Linkage: Fitch will reassess linkages with the proposed new major shareholder should the transaction go ahead and may upgrade or affirm CCL's rating if it believes linkage between CCEP and CCL remain strong or moderate. However, CCL may lose its one-notch uplift if we conclude that linkages are weak. Operational linkage is unclear at this point, and while CCL provides CCEP with access to over 285 million Asia-Pacific consumers, including in emerging markets with strong consumption growth prospects in addition to significant cash generation from Australia, the Australian business is facing structural challenges. Lower Sales Volume: The pandemic-related shutdown hurt CCL's trading volume in 9M20, which was down by around 10% from the same period last year. Australia and New Zealand reported a drop in volume growth to the mid-single digits; while CCL's grocery channel volume increased in Australia, this was offset by lower volume elsewhere. Reported volume in Indonesia and Papua New Guinea was also down by around 15%. However, trading volume has started to recover since movement restrictions were lifted in Australia and New Zealand. We believe the company's solid liquidity position and credit metrics provide enough buffer to protect against the pandemic-related downturn. Derivation Summary CCL's smaller scale and weak market position in Australasia compared with global peer, CCEP, results in a one-notch rating gap. Turkey-based Coca-Cola Icecek (CCI, BBB-/Stable) has a smaller scale and lower margin than CCL and its Long-Term Foreign-Currency IDR is constrained by Turkey's Country Ceiling of 'BB-'. This results in a multiple-notch difference between the Foreign-Currency IDRs of CCL and CCI. RATING SENSITIVITIES Fitch will resolve the RWE once it resolves the Rating Watch Negative on CCEP's rating and has sufficient information on linkages between CCEP and CCL. The proposed transaction not going ahead would lead Fitch to affirm the rating with a Stable Outlook. Factors that could, individually or collectively, lead to positive rating action/upgrade: Successful completion of the transaction and strong or moderate linkage between CCL and CCEP. Factors that could, individually or collectively, lead to negative rating action/downgrade: Successful completion of the transaction and weak linkage between CCL and CCEP; this may result in CCL losing the one-notch uplift from its SCP. Best/Worst Case Rating Scenario International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. Coca-Cola Amatil Limited; Long Term Issuer Default Rating; Rating Watch On; BBB; Rating Watch Evolving ; Short Term Issuer Default Rating; Rating Watch On; F2; Rating Watch Evolving ----senior unsecured; Long Term Rating; Rating Watch On; BBB; Rating Watch Evolving Contacts: Primary Rating Analyst Leo Park, Associate Director +61 2 8256 0323 Fitch Australia Pty Ltd Suite 15.01, Level 15 135 King Street Sydney 2000 Secondary Rating Analyst Kelly Amato, CFA Director +61 2 8256 0348 Committee Chairperson Vicky Melbourne, Senior Director +61 2 8256 0325 Media Relations: Peter Hoflich, Singapore, Tel: +65 6796 7229, Email: peter.hoflich@thefitchgroup.com Leslie Tan, Singapore, Tel: +65 6796 7234, Email: leslie.tan@thefitchgroup.com Additional information is available on www.fitchratings.com The following issuer(s) did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure: Coca-Cola Amatil Limited Applicable Criteria Corporate Rating Criteria (pub. 01 May 2020) (including rating assumption sensitivity) (https://www.fitchratings.com/site/re/10120170) Corporates Notching and Recovery Ratings Criteria (pub. 14 Oct 2019) (including rating assumption sensitivity) (https://www.fitchratings.com/site/re/10090792) Parent and Subsidiary Linkage Rating Criteria (pub. 26 Aug 2020) (https://www.fitchratings.com/site/re/10133830) Sector Navigators - Addendum to the Corporate Rating Criteria (pub. 26 Jun 2020) (https://www.fitchratings.com/site/re/10125796) Additional Disclosures Solicitation Status (https://www.fitchratings.com/site/pr/10141573#solicitation) With respect to this RAC, if the lead analyst is based in an EU-registered entity, the issuer(s) will be displayed below in the following colour when the ratings provided are unsolicited and the issuer(s) did not participate in the rating process, or provide additional information beyond the issuer's available public disclosure. Non-Participating Unsolicited Issuers Coca-Cola Amatil Limited AUD 100 mln 5% Notes 25 Nov 2020 Coca-Cola Amatil Limited AUD bond/note Coca-Cola Amatil Limited AUD 20 mln 4.25% Notes 29 Dec 2025 Coca-Cola Amatil Limited AUD 133 mln 2.45% bond/note 30-Aug-2029 Coca-Cola Amatil Limited AUD 100 mln 3.5% bond/note 26-Apr-2024 Coca-Cola Amatil Limited AUD 200 mln 3.375% bond/note 10-Mar-2022 Coca-Cola Amatil Limited AUD 100 mln 3.125% bond/note 22-Jul-2022 Coca-Cola Amatil Limited AUD 100 mln 4.625% Notes 21 May 2021 Endorsement Status (https://www.fitchratings.com/site/pr/10141573#endorsement_status) Endorsement Policy (https://www.fitchratings.com/site/pr/10141573#endorsement-policy) ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS (HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS). IN ADDITION, THE FOLLOWING HTTPS://WWW.FITCHRATINGS.COM/RATING-DEFINITIONS-DOCUMENT (https://www.fitchratings.com/rating-definitions-document) DETAILS FITCH'S RATING DEFINITIONS FOR EACH RATING SCALE AND RATING CATEGORIES, INCLUDING DEFINITIONS RELATING TO DEFAULT. 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE AT HTTPS://WWW.FITCHRATINGS.COM/SITE/REGULATORY (https://www.fitchratings.com/site/regulatory). 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 RATINGS WEBSITE. Copyright © 2020 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001 Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO's credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see https://www.fitchratings.com/site/regulatory), other credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.