(Sept 24): The world’s biggest brewer should raise a glass to Singapore. Anheuser-Busch InBev NV can probably thank the city-state’s sovereign wealth fund for saving its Asian unit’s Hong Kong initial public offering from an ignominious second failure. GIC committed to invest US$1 billion ($1.38 billion) in Budweiser Brewing Company APAC, which raised about US$5 billion after pricing its shares at the bottom of a marketed range.
In July, AB InBev pulled a US$9.8 billion sale that would have been the world’s largest IPO this year after struggling to draw enough orders at the valuation sought. On that occasion, Budweiser Brewing eschewed the common Hong Kong practice of setting aside a block of stock for so-called cornerstone investors – companies, institutions or wealthy individuals that commit to invest and hold their shares for a minimum period, signaling confidence in a listing’s prospects to the wider public.
A successful Budweiser Brewing offering in July would have dealt a blow to the cornerstone custom, as I observed then. Instead, it was the company that suffered. This time around, it went the conventional route.
Just as well. Despite halving its fundraising target, the company failed to create much buzz. Its valuation again looks to have been ambitious. At the bottom of the price range, Budweiser Brewing was priced at 17 times estimated 2020 enterprise value to Ebitda. That compares with 18.5 times for China Resources Beer Holdings Co, maker of the country’s best-selling Snow brand. Arun George, an analyst who writes on Smartkarma, estimated Budweiser Brewing should trade at 16 times EV/Ebitda.
After the collapse of the July IPO, AB InBev sold the unit’s Australian business for US$11.3 billion to Asahi Group Holdings. That enabled bankers to pitch the pared-down business as a growth play focused more tightly on developing Asia, particularly China. AB InBev has 46.6% of the market of the market for premium and super-premium beer in China, more than triple the share of nearest rival Tsingtao Brewery Co. The share of 2018 Ebitda drawn from the company’s Asia Pacific West region – comprising China, India and Vietnam – rose to 72% from 50% after the Australian sale, according to Bernstein Research.
However, that still leaves a substantial chunk of earnings contributed by a slower-growing Asia Pacific East region that includes South Korea, Japan and New Zealand. In that light, the support of a heavyweight investor such as GIC may have made the difference in getting Budweiser Brewing over the line.
The irony of Singapore riding to the rescue won’t have been lost on Hong Kong Exchanges & Clearing. The rival Asian financial center stands to gain more than most from the political turmoil and US-China trade tensions that have weighed on the Hong Kong stock exchange. A successful Budweiser Brewing listing may be critical in shoring up investor sentiment for a pipeline of IPOs to come that includes the lucrative secondary listing of Alibaba Group Holding.
That still depends on how the stock performs once it starts trading, scheduled for Sept 30. Keep the beer on ice until then.
Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking
