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Why Budweiser’s Asia IPO Is Bigger Than Uber in Four Charts

Tuesday, July 9, 2019  
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Thomas Mulier | Bloomberg

July 8, 2019

Photographer: Andrey Rudakov/Bloomberg


The beer business has gone flat globally, but it’s booming in parts of Asia. Anheuser-Busch InBev NV is counting on demand from Chinese drinkers as it prepares for the year’s biggest initial public offering, a sale of shares in its regional unit that could raise as much as $9.8 billion.

The world’s largest brewer is expected to set the IPO price on Thursday, after flagging a valuation of as much as $64 billion for Budweiser Brewing Co. APAC. The amount raised could top the more ballyhooed listing of Uber Technologies Inc., which fetched $8.1 billion in May.

Here are four charts that show why.

 

AB InBev's debt doubled after SABMiller purchase

AB InBev's debt doubled after SABMiller purchase Debt reduction is a key motivation for the sale. AB InBev’s $106 billion purchase of SABMiller in 2016 cemented its global dominance as the brewer of one-third of the world’s beer. It also saddled the company with a pile of debt, which hovers above 100 billion euros ($112 billion).

AB InBev has already moved to reduce leverage, cutting its dividend in half last October to save $4 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. The Belgian brewer has earmarked proceeds of the IPO to reduce leverage further.

Surging Demand
Over the past decade, thirst for beer in Asia has propelled AB InBev's sales


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Source: AB InBev

Asia’s thirst for beer has not been slaked. Brewers’ growth in China is in sharp contrast to their malaise elsewhere. In Europe and the U.S., drinkers are imbibing less, opting for craft beers over mainstream brands like AB InBev’s Budweiser or switching to cocktails.

AB InBev has said it’s splitting one of its growth motors off as a way to woo local partners. A separate Asian unit may make it easier to form tie-ups involving shareholdings and stake swaps in a region where revenue almost quintupled this decade.


Foreign Appeal
Foreign Appeal
Budweiser Brewing APAC, which may achieve a market value to rival Heineken NV, is the biggest foreign brewer in China and trails only China Resources Beer Holdings Co., maker of the country’s Snow brand, the top-selling brew by volume.

But the Dutch brewer moved to challenge its larger Belgian rival in China last year by acquiring a 40% stake in the parent of China Resources Beer Holdings. The tie-up will boost Heineken’s presence in Chinese bars, restaurants and supermarkets.

Room to Grow
Asian drinkers spend much less on beer than those in the U.S. and U.K.


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Source: Euromonitor International 2018 data

Some analysts say that AB InBev is seeking a heady valuation, as the price range values Budweiser Brewing at 28.5 to 33.5 times consensus 2020 earnings, above the ratios of Heineken and Carlsberg A/S. One justification is that the unit is poised for rapid growth as drinkers in China and other Asian countries like Thailand trade up to pricier brews as their incomes rise. Budweiser retails for over two and a half times the price of Snow beer in China.

The average Chinese drinker spends just $66.80 a year on beer, compared to $315.60 for Americans and $441 for British consumers, according to 2018 data from Euromonitor International. AB InBev is betting that it’ll be the chief beneficiary as Chinese drinkers move closer to their Western counterparts in beer spending. The IPO will show if investors agree.

 


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