Asia: AB InBev CEO betting on public listing in Asia to help with acquisitions

The head of Anheuser-Busch InBev is betting that a planned public listing in Asia will help the world’s largest brewer expand in the fast-growing region via acquisitions, the Financial Times reported on June 30.

The company has been meeting investors since mid-June to gauge demand for the initial public offering of Budweiser APAC in Hong Kong, according to people familiar with the process, and will decide whether to press ahead in July, depending on price and market conditions.

Asked about the listing at a press event in Belgium, AB InBev chief executive Carlos Brito likened the potential sale of a minority stake in its Asian business to how the company used AmBev, its Brazilian listed subsidiary, to help convince owners of beer companies in Latin America to sell to AB InBev over the past 20 years.

“The number one reason to do the listing is to have a platform in the region that is seen as closer to those markets and connected to what the region will do, since that’s something that can be attractive to local groups,” he told the Financial Times. Sellers feel “more comfortable” joining forces with and being paid in shares of a local entity, rather than a global one.

“That’s what we saw in Latin America, so we’re betting that the same model could work in Asia,” said Mr Brito, who has led the maker of Bud Light and Stella Artois for nearly 15 years.

Backed by the Brazilian billionaires behind 3G Capital, Mr Brito’s AB InBev used cheap debt to consolidate the fragmented global brewing industry and perfected a model of ruthless cost-cutting to rapidly boost margins at the acquired businesses.

Its most recent large deal, the £79bn acquisition of SABMiller, left it highly leveraged, carrying $102.5 bln in debt at the end of 2018, giving it a net debt-to-ebitda ratio of 4.6 times.

Possible targets in Asia could include Thai Bev, which would give AB InBev access not only to Thailand but also to fast-growing Vietnam, and San Miguel Beer in the Philippines, said Barclays analyst Laurence Whyatt. “It will be interesting to see if ABI can really line up deals in Asia since there are not that many viable, quality targets in the region that are big enough to really move the needle,” he added.

If AB InBev pushes ahead with the Asia IPO, it could raise $5 bln to $10 bln that will be used to cut debt, analysts said.

Although JPMorgan, one of the lead banks on the IPO, has valued the Asia unit at $63 bln to $77 bln, Jefferies and Bernstein Research, which are not involved in the process, reckon it is worth $45 bln to $55 bln.

Budweiser APAC includes a fast-growing business in China, as well as a more mature, profitable one in Australia and Korea. The latter generated almost two-thirds of last year’s revenue of $8.5 bln and just over half of earnings before interest, taxes, depreciation and amortisation of $2.8 bln, according to the IPO filing.

But China is expected to be the main growth driver as the burgeoning middle class trades up from local brews to foreign ones like Budweiser, which are positioned as premium brands.

“In China, there is still lots of room to grow because there are provinces away from the coast where we don’t have such a big presence,” said Mr Brito.

He also downplayed the risks from rival Heineken’s renewed effort to break into China, which it furthered recently when it completed the acquisition of a stake in the country’s biggest beer company, China Resources Beer Holdings Co.

“We take it very seriously and it is a change, but Heineken has been there forever so this is not like a new brand entering the Chinese market,” he said.

When Heineken invests significantly to grow in China, it will also benefit AB InBev, he said, since the whole premium segment will grow as more advertising dollars get put behind it.

“Consumers will trade up even more, and since we lead the premium segment, we will be the biggest beneficiary,” he said. “Yes, there will be growth for others, but most of it will come to us if we do the right things.”

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