Anheuser-Busch InBev still has hopes of putting its Asian business up for an initial public offering in Hong Kong, two months after it withdrew a $9.8 billion deal citing unfavourable market conditions, the Belgian brewing giant said on Thursday.
Although it hasn't specified when it will relaunch the deal and said it could give no assurance that the transaction will be completed, Budweiser APAC, AB InBev’s Asian arm, has all the same filed an updated preliminary prospectus on the Hong Kong stock exchange.
AB InBev's plan to bring back its Asian business for a partial sale comes at an intriguing time for Hong Kong, with the uncertainty around the city’s political stability intensifying since July.
Fitch Ratings last week cut Hong Kong’s credit rating for the first time since 1995, downgrading its long-term foreign currency issuer default rating to AA from AA+. It said the political turmoil raised doubts about the city's governance.
Still, the impact on financial markets has been limited thus far. Hong Kong’s benchmark Hang Seng Index now trades at roughly the same level as it did on June 9, when the first large-scale protests broke out.
Some investors and analysts FinanceAsia spoke to believe investor sentiment may have even improved slightly, citing China’s abolishment of the QFII quota and the Hong Kong Stock Exchange’s attempt to acquire the London Stock Exchange as examples of bullishness.
In any case, AB InBev has restructured the Asian business ahead of its second listing attempt in Hong Kong. The company, which owns more than 50 beer brands including Budweiser, Stella Artois, Hoegaarden and Corona, sold its Australian business separately to Japanese beer giant Asahi Group shortly after the failed IPO attempt in July.
Without the Australian business, the company’s revenue is 19% lower, gross profit is down by about 23%, while overall asset size is down 38%. Gross profit margin has also declined by 2.6 percentage points, mainly because the company sold more premium products and enjoyed higher margins in Australia.
However, the removal of the relatively mature Australian operations implies Budweiser APAC has a portfolio that is better positioned for growth.
“The real attraction of investing in Budweiser APAC was the China business and its premium positioning,” said Sumeet Singh, an equity analyst at Aequitas Research writing on independent research platform Smartkarma. “That hasn't changed with the sale of the Australian business. On the contrary, now the current listing provides a better exposure for the same.”
“While the size of the company is smaller and its overall margins are lower, its growth prospects are slightly better,” Singh said.
The company hopes its strength in super-premium beer categories will allow it to capitalise on Asian markets that are experiencing a shift in consumer preferences towards higher-priced beers.
China is one of these markets, having seen rapid disposable income growth and urbanisation over the past few years. AB InBev, which currently owns the affordable Harbin brand in China, is looking to move up the value chain by expanding the market share of its premium brands.
MORE ROOM FOR PRICING
Perhaps more importantly, AB InBev is now in a better financial position after selling its Australian business to Asahi for $11.3 billion. This alone is significantly more than the $9.8 billion it planned to raise through the Budweiser APAC IPO.
Many analysts believe AB InBev wanted to sell a minority equity stake in the Asian business through the IPO to help cut debt.
AB InBev’s improved financial status means it has more room to sell the IPO at a more favourable price to public investors. As FinanceAsia has pointed out earlier, the company failed at the first listing attempt mainly because it adopted an aggressive valuation and left little on the table for prospective investors.
In its July attempt, Budweiser APAC’s implied market cap of $56 billion to $65 billion equated to 28.5 times to 33.5 times its projected earnings next year, putting it at a premium to most top-tier brewers in the region.
On a price-to-earnings basis it was valued at a 130% premium to Asahi Group, 58% to Dutch beer giant Heineken and 43% to Denmark's Carlsberg. Valuation of the Asian business was also 73% richer than AB InBev itself, which was trading at about 19.4 times P/E on a rolling 12-month basis.
The company will have to tread very carefully with pricing and valuation because it would be very hard to come back a third time.
JP Morgan and Morgan Stanley remain as joint sponsors of the IPO.