Fitch Upgrades Ambev's Ratings to 'A'; Outlook Stable

Fitch Ratings has upgraded the following ratings:

Companhia de Bebidas das Americas (Ambev):

--Foreign currency long-term Issuer Default Rating (IDR) to 'A' from 'A-';

--Local currency long-term IDR to 'A' from 'A-'.

Ambev International Finance Co. Ltd.

--Foreign currency long-term IDR to 'A' from 'A-';

--Unsecured notes due 2017 to 'A' from 'A-'.

Fitch has affirmed Ambev's 'AAA(bra)' national scale rating and the 'AAA(bra)' rating of Ambev's BRL1.248 billion notes due in 2012. The Rating Outlook is Stable.

In conjunction with these rating actions, Fitch has also affirmed the foreign and local currency IDRs of Cerveceria y Malteria Quilmes S.A.I.C.A. y G. (CMQ) at 'BB+'. CMQ is an Argentine subsidiary of Ambev. Its rating have been linked to a degree to Ambev's through Fitch's parent and subsidiary rating criteria; the increasing regulatory and political uncertainty in Argentina limits CMQ's ratings to one notch below investment grade.

The upgrades of Ambev's ratings are a result of the company's continued commitment to a solid capital structure and its very strong free cash flow generation. The upgrades also reflect the continued improvement in Anheuser-Busch InBev SA/NV's (AB InBev) credit quality during the last year.

Ambev's 'A' ratings are amongst Fitch's highest corporate ratings in Latin America. They reflect the unique qualities of the company, which include excellent business positions in several markets, continued strong operating cash flows, and the stability and defensive nature of the beverage industry. The ratings are higher than Brazil's country ceiling of 'BBB+' due to the geographic diversification of the company's operations and cash flows and the close credit linkage of Ambev and AB InBev.

Fitch expects Ambev's EBITDA to grow in the high single digits in 2012 and that the company will generate free cash flow after capital expenditures (but before dividends) of about BRL 11 billion. This will allow the company to distribute significant dividends and pursue key acquisitions without weakening the ratings below the 'A' category.

The company generated BRL13.1 billion of EBITDA during 2011, a 12% increase from BRL11.7 billion during 2010. During this time period, Ambev's funds from operations (FFO) grew by 14% to BRL12 billion, while its cash flow from operations (CFO) increased by 25% to BRL12.6 billion thanks to the company's continued focus on working capital management. Free cash flow after BRL3.2 billion of capital expenditures (but before dividends) was strong at BRL9.4 billion. Dividend payments were BRL5.5 billion in 2011. In the first quarter of 2012 the company's revenue and EBITDA increased by 10% and 9% respectively as compared to the same quarter in the prior year.

As of March 31, 2012, Ambev had BRL8.2 billion of cash and market securities and BRL3.8 billion of total debt. Ambev's FFO adjusted leverage ratio was 0.3 times (x) and its total debt/EBITDA ratio was 0.3x. Fitch expects the company to lower its cash position in the next two years, resulting in a net leverage position by 2013. In spite of the movement to a net debt position, Ambev's total leverage should continue to remain below 1.0. During the past decade, Ambev's total debt/EBITDA ratio averaged 1.2x, while its net debt/EBITDA ratio averaged 0.6x. The former ratio exceeded 2.0x only one time during the past decade, when it reached 2.3x in 2001. Ambev's net debt/EBITDA ratio hit a high of 1.4x in 2004.

Brazil continues to be Ambev's key market, accounting for more than 73% of its EBITDA during the last-12-months ended March 31, 2012. While the Brazilian economy slowed down during 2011, Fitch believes that the downturn is cyclical. Fitch expects that GDP growth will accelerate in 2012 and return closer to its sustainable potential growth rate of 4%-5%. This level of growth supports Brazil's medium-term fiscal outlook and should continue to strengthen the country's external liquidity position. The combination of these factors should improve the country's ability to absorb external shocks. The strength in the Brazilian economy should also result in growing personal income levels and higher consumption of beverage products.

The company's Brazilian beer sales have increased by about 22% since 2008, while its share of the beer market has increased to 69% from 67.5% (slightly declining from 70.1% in 2010). During this time period, the company's soft drink sales have increased 19% and its market share has remained stable at 17.9%. Ambev also has dominant beer market shares of 41% in Canada, 76.9% in Argentina and nearly 100% in Paraguay, Bolivia, and Uruguay. These leading market positions are viewed to be sustainable because of the company's strong brands and extensive distribution systems.

The linkages between Ambev and AB InBev's credit quality are many, and the upgrades reflect the reduction of AB InBev's total debt to USD42.3 billion at the end of 2011 from USD60billion at the end of 2008 through asset sales and with operating cash flow. Continued debt reduction plus growing cash flow should allow AB InBev to lower its net adjusted leverage ratio to about 2.0x by the end of 2012 from about 2.4x during 2011. AB InBev is Ambev's controlling shareholder, owning 61.9% of total capital and 74% of the voting shares. More than 50% of AmBev's board is made up of either members of AB InBev's board or its management team, and AmBev represents more than 50% of AB InBev's consolidated EBITDA.

What Could Change the Ratings or Outlook

Continued improvements in Brazil's sovereign risk, Ambev's main market and the further strengthening of AB InBev's credit profile and ratings my result in positive rating action.

Conversely, additional acquisitions by either Ambev or AB Inbev that might result in a material change in the company's capital structure may result in a rating downgrade.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 13, 2010);

--'Parent and Subsidiary Rating Linkage' (July 14, 2010);

--'National Ratings Criteria' (Jan. 19, 2011);

--'Rating Corporates Above the Country Ceiling' (Jan. 5, 2011).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647210

National Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885

Rating Corporates Above the Rating Ceiling

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=668909

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