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Repeated IPO plans: The 'torn' Anheuser-Busch InBev Budweiser APAC is a subsidiary of Anheuser-Busch InBev (AB InBev), the world's largest beer producer, primarily serving markets such as China, South Korea, India, and Vietnam, producing and selling over 50 brands including Budweiser and Harbin Beer. In 2018, it reported revenue of $8.459 billion, net profit of $1.409 billion, and a market share of 14.17%.

In the second half of 2019, no company in the beer industry was more restless than AB InBev. After several attempts at the Hong Kong Stock Exchange, Budweiser APAC, spun off from AB InBev, announced a new listing plan on September 17. This time, Budweiser APAC set a definitive trading date of September 30, but the beverage industry, having been through AB InBev's repeated 'turbulence,' seems more curious about what this beer giant is really agonizing over, or what it is facing.

Restarting the IPO plan This time, Budweiser APAC disclosed many details for the first time, including the share offering price and listing date. Specifically, Budweiser APAC initially plans to offer 1.26235 billion shares at an offer price between HK$27.00 and HK$30.00 per share.

Meanwhile, reporters from Wine News noted in the company's official timetable that the final offer price is expected to be set on September 23, with the final offer price and allocation results announced on September 27, followed by trading on the Main Board of the Hong Kong Stock Exchange starting September 30.

It is worth mentioning that when Wine News contacted AB InBev for details, it was learned that Budweiser APAC had entered into a cornerstone investment agreement with GIC Private Limited (GIC), under which GIC agreed to subscribe for a corresponding number of offer shares at a total amount of approximately $1 billion. Upon hearing this, some industry insiders joked, 'It seems AB InBev has finally reached a price agreement with investors.'

Whether it was a price agreement is unknown, but from the detailed information, Budweiser APAC has significantly adjusted its business structure, no longer including its Australian operations. Just prior, AB InBev announced the sale of its Australian subsidiary Carlton & United Breweries (CUB) to Japanese beverage and food giant Asahi Group for approximately RMB 77.6 billion.

This massive sale is seen as a move by AB InBev to pay off debt, with AB InBev claiming that divesting the Australian subsidiary would help accelerate expansion in the fast-growing Asia-Pacific market. Industry observers suggest that after shedding the Australian unit, AB InBev might indeed be able to operate more nimbly and focus on Budweiser APAC's IPO.

Addressing 'tight pockets' AB InBev's persistence in pushing Budweiser APAC's IPO seems superficially driven by the strong performance in the Asia-Pacific region. In 2018, Asia-Pacific accounted for 37% of global beer consumption, and it is expected to contribute 47% of global beer consumption growth from 2018 to 2023. Such a vast market is undoubtedly key to AB InBev's future profit pursuits.

This is also seen by the industry as the most direct trigger for AB InBev's spin-off of Budweiser APAC and its Hong Kong listing. However, with AB InBev's sudden announcement in July to suspend Budweiser APAC's IPO in Hong Kong, and industry discussions about AB InBev's debt situation, the company's funding issues have become the crux of the erratic IPO plans.

It is understood that in recent years, AB InBev has continuously expanded through acquisitions: in 2016, it acquired SABMiller for a staggering RMB 679.1 billion, monopolizing one-third of the global beer market; additionally, Budweiser acquired an Australian online retailer, a South Korean craft brewery, and Blue Girl Beer, among others.

In the Chinese market, AB InBev has also employed acquisition strategies. After acquiring the well-known Chinese brand Harbin Beer, AB InBev continued to acquire domestic beer brands such as Xuejin, Shuanglu, Jinling, Santai, and Mudanjiang, attempting to dominate the Chinese beer market.

However, the continuous acquisitions have brought not only extensive market coverage but also significant financial strain, with debt rising steadily. Consequently, AB InBev has had to find ways to address its funding issues. Besides selling assets, packaging premium resources for listing to 'replenish blood' from the capital market has undoubtedly become a primary reason for AB InBev's persistence in pushing Budweiser APAC's IPO.

Zhu Danpeng, a Chinese food industry analyst, stated, 'From a macro perspective, after acquiring SABMiller, AB InBev's cash flow is relatively tight, and it is difficult to remedy the funding shortage in the short term. Therefore, spinning off the quality Asia-Pacific segment for a separate listing can attract capital market attention and favor, largely solving funding problems. From a micro perspective, the spun-off entity's stock price, capital, and profits have good support. Amid the consumption upgrade dividend in the Asian market, Budweiser's brand tone and product structure can well match the consumption upgrade needs across the entire Asian segment.'

Asia-Pacific is not a 'cure-all' Besides patching up AB InBev's 'leaky' capital chain, Budweiser APAC's choice to list in Hong Kong may also be tied to the vast Chinese market behind Hong Kong. Beer marketing expert Fang Gang said, 'AB InBev's spin-off of Budweiser APAC for a Hong Kong listing is driven by the large market share in China. By expanding in the Chinese market, Budweiser APAC can generate more revenue to cover the parent company's funding gap.'

But the Chinese beer market has entered a red ocean. Both Chinese brewers and competitors fighting AB InBev overseas are encircling it. Especially as the Chinese beer market shifts toward mid-to-high-end segments, AB InBev, facing internal and external pressures, can no longer fully control the market's direction.

Currently, the high-end beer market in China is characterized by a 'four-legged' pattern: Yanjing, Tsingtao, China Resources, and Budweiser. In August 2018, China Resources Beer acquired Heineken's China operations for HK$24.35 billion. Both sides benefited: China Resources used Heineken to expand its high-end market and adjust its product structure, while Heineken leveraged China Resources' extensive distribution channels to expand and compete with Budweiser for market share.

At the same time, the emergence of craft beer as a 'dark horse' has further fragmented market share, posing a crisis for domestic mid-to-high-end beers. Craft beer targets high-end consumers with spending power, and with its richer flavor compared to canned beer, it has gained widespread popularity, capturing a significant share of the market. This poses a major challenge to Budweiser, which is rooted in the high-end market.

Under this dual pressure, AB InBev's situation in Asia is not easy. According to financial reports, AB InBev's sales volume in Q1 2019 was 13,346.2 thousand kiloliters, down 1.02% year-on-year, with Asia-Pacific sales at 2,398.6 thousand kiloliters, down 1.28%. In China, Q1 revenue grew 7.8%, but sales volume fell 1.1%.

Industry insiders say that for AB InBev, besieged from all sides, the Asia-Pacific market may have broad prospects, but it cannot serve as a 'cure-all' for the company's real problems. The slight decline in sales volume, amid increasingly diverse consumer choices in China, may be a signal for AB InBev to rethink its market strategy in China.

A tough battle awaits Budweiser in the Chinese market If Budweiser APAC successfully lists, the Chinese beer market will undoubtedly undergo significant changes.

Budweiser entered mainland China in the 1990s and by 2001 had become the foreign beer brand with the highest sales in China.

Now, with global beer consumption at a low point, the Chinese market is even more valuable. In 2018, China accounted for 25% of global beer consumption and is still in a recovery growth phase. Moreover, against the backdrop of consumption upgrades, the Chinese beer market will be in a process of moving toward high-end and ultra-high-end segments for a considerable period.

For any beer company, the Chinese market is a 'fat piece of meat' not to be missed.

Currently, Budweiser holds a 16.4% market share in China, ranking behind China Resources Snow and Tsingtao. However, in the high-end beer market, Budweiser leads with a 46.6% share, firmly in first place. In this segment, Tsingtao holds 14.4%, China Resources Snow 11%, Carlsberg 4.6%, and Heineken 1.7%.

It is foreseeable that the battle for the high-end beer market will profoundly impact the future landscape of China's beer industry.

To this end, Budweiser has acquired several Chinese craft beer companies and will inevitably increase investment and expand after listing.

However, domestic beers will not concede easily. In recent years, Tsingtao has launched high-end products such as Auguste, Hongyun Dangtou, Classic 1903, and Pure Draft, positioning mid-to-high-end as its future direction. China Resources Snow is taking a dual approach: launching new products and partnering with Heineken to lay out its high-end strategy.

After Budweiser APAC's listing, its 'three-way battle' with Tsingtao and China Resources Snow will begin anew.

Source: Wine News (ID: jiuxunzlty) Tips will be paid 400-2000 yuan upon adoption.