AB InBev's sale of Asia-Pacific unit can raise $9.8 bn in Hong Kong IPO

The Hong Kong IPO consists of 1.63 billion shares of Budweiser Brewing Company APAC Ltd. offered at HK$40 to HK$47 each, according to terms of the deal obtained by Bloomberg on Tuesday

Anheuser-Busch InBev NV kicked off the year’s biggest initial public offering, a sale of shares in its Asia Pacific beer unit that could raise as much as $9.8 billion and top Uber Technologies Inc.’s May listing.

The Hong Kong IPO consists of 1.63 billion shares of Budweiser Brewing Company APAC Ltd. offered at HK$40 to HK$47 each, according to terms of the deal obtained by Bloomberg Tuesday. Trading is expected to start on July 19.

The price range represents a market value of as much as $64 billion for Budweiser Brewing, on par with that of Heineken NV, the world’s second-largest brewer. 

The listing will enable acquisitions by creating a “local champion” and will help AB InBev reduce its debt, Chief Financial Officer Felipe Dutra has said.

AB InBev shares rose 1.7% Tuesday morning in Brussels. They have gained 38% this year.

The company is counting on the region’s growth potential to draw interest in the shares as the beer business faces stagnating prospects elsewhere. 

AB InBev has already cornered the premium market in China and has been buying up local craft brands to reach fashionable millennials with a taste for more expensive brews.

‘Punchy’ Valuation

The range values Budweiser Brewing at 28.5 to 33.5 times consensus 2020 earnings, according to terms of the deal obtained by Bloomberg. 

Heineken trades as 20.2 times that year’s estimated profit, while China Resources Beer Holdings Co. is valued at 37.2 times, data compiled by Bloomberg show.

The valuation is “reasonably punchy,” wrote Societe Generale analyst Toby McCullagh. A sale at the top end could result in a 10% reduction of borrowings and help the company get net debt below a target of four times earnings one year earlier than planned, he added.

The Belgian brewer is among multinational companies that are reviewing their business strategies in Asia amid fierce competition from local rivals. French hypermarket operator Carrefour SA has agreed to sell a controlling stake to China’s Suning.com Co., while German food retailer Metro AG has put its Chinese operations up for bidding.

Local Flexibility

The IPO could give AB InBev more flexibility to seek local partners, a strategy the brewer has deployed in Latin America with its AmBev SA unit. Heineken has formed a partnership with China Resources, challenging AB InBev’s position as the largest foreign brewer in the world’s biggest market.

The Asia-Pacific unit had net income of $1.4 billion in 2018, up from $1.1 billion a year earlier, according to a preliminary prospectus.

The market value is within previous expectations for $40 billion to $70 billion. At $9.8 billion, Budweiser Brewing’s sale would rank as the biggest IPO this year, surpassing Uber’s $8.1 billion offering in May, according to data compiled by Bloomberg.

AB InBev is still trying to reduce the debt it amassed through its purchase of SABMiller for more than $100 billion. S&P Global Ratings said in March it may cut its credit rating after Moody’s Investors Service downgraded AB InBev one level late last year.

JPMorgan Chase & Co. and Morgan Stanley are joint sponsors for the Hong Kong share sale. They’re scheduled to price the offering on July 11.