Two months after scrapping a $9.8 billion IPO of its Asia Pacific business, which would have been this year’s largest IPO, Belgium-listed Anheuser-Busch InBev SA/NV (AB InBev) is once again planning to list Budweiser Brewing Company APAC in Hong Kong. However, after investors balked at the unit’s $63 billion price tag the first time round, the world’s largest beer brewer is now seeking a less heady valuation for its regional retailer.
In a short announcement on Thursday morning, the Belgium-listed AB InBev said it had “resumed its application” for the listing of a minority stake of its shares in wholly-owned Budweiser Brewing Company APAC. The beer brewer had originally planned to raise $9.8 billion for the unit through an IPO in July but then suddenly scrapped the plan citing “prevailing market conditions.”
Even now, AB InBev remains cautious, saying in its statement, “No assurance can be given that this transaction will be completed and the decision to proceed will depend on a number of factors and prevailing market conditions.” However, a source with knowledge of the matter said the IPO will likely take place next week, with the unit listing on the Hong Kong stock exchange by the end of the month.
AB InBev cancelled its first attempt at an IPO for Budweiser APAC in July, prompting some speculation that the protests in Hong Kong, which by then had escalated from peaceful marches to violent clashes, had in some way dissuaded the beer brewer from listing.
Similar speculations were made last month when Alibaba reportedly postponed its Hong Kong listing, too. However, with protests still flaring across the city, it appears the beer brewer isn’t so concerned by the noise on the streets.
“I would be very surprised if the protests had any bearing on AB InBev’s decision,” says Phil Gorham, Director of Research in Japan at Morningstar, where he covers AB InBev. “I think ‘prevailing market conditions’ means they have a price in mind and if they don’t get that price, they’ll yank the IPO again.”
Budweiser APAC’s prospectus doesn’t confirm a target price for the IPO. In its previous filing, the brewer offered over 1.6 billion shares at a maximum price of HK$47 (US$6) each. Since then, however, Budweiser APAC sold its Australian unit to Japan’s Asahi Breweries for $11.3 billion. In its latest prospectus, Budweiser APAC downgraded 2018 revenues from Asia Pacific East, a region that previously included Australia, from $3.3 billion to $1.6 billion.
Having stripped out its Australian sales, the valuation of Budweiser APAC this time around will likely be below the $63 billion price tag AB InBev projected in July, which analysts said was over-inflated at the time. Reuters reports the new IPO will seek to raise $5 billion.
Even at a lower price, the offering will be a welcome relief for Hong Kong Exchanges and Clearing (HKEX), which operates Hong Kong’s bourse. Last year, Hong Kong was the number one destination for IPOs, with 125 companies raising a collective $36.5 billion. In the year to date, however, the value of companies coming to market has fallen 40%.
Gateway to China
Having ditched Australia, Budweiser APAC now has sales in 38 territories. The company’s prospectus highlights China, South Korea, India and Vietnam as its four principal markets but, according to Gorham, without Australia the business is “all about China.”
China is the world’s largest beer market by consumption, where a hearty 45.7 billion liters of suds were swilled last year. According to Euromonitor, in 2018 AB InBev had 16% of the market, where it owns China’s oldest beer brand, Harbin, which was founded in 1900. The cheap lager, named for the icy region where it’s brewed, makes up the majority of Budweiser APAC’s “core” product range in China.
As China’s beer drinkers continue to “premiumize,” however, the AB InBev subdivision will likely look to its higher-value offerings for growth. That includes brands such as Goose Island—a craft beer that AB InBev purchased in 2011 for $37 million and has promoted aggressively in China, recently opening a brewery in the Hubei province to produce the brew locally.
AB InBev’s spending spree—particularly its 2016 purchase of rival Sab Miller for $100 billion—has left the company heavily in debt. Listing its APAC unit could help AB InBev deleverage but could also help the group pursue M&A opportunities across the region, Budweiser APAC noted in its original prospectus.
“I think the long term strategy would have to be to expand into other markets in Southeast Asia but I think it’s about China right now. They have to get growth there and try to expand margins,” Gorham says.
Gorham doesn’t think the listing is directly related to AB InBev’s China interests and maintains that if the company doesn’t get the valuation it wants, then it can wait. But with AB InBev reportedly seeking a significantly lower valuation for Budweiser APAC this time, investors will likely pick up the tab.
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