Good Beer Hunting

No LOL Matter — AB InBev’s China IPO is DOA as Debt Worries Mount



A potential $9.8-billion windfall has been canceled by Anheuser-Busch InBev.

The multinational conglomerate decided not to go forward last week with an initial public offering for its Budweiser Brewing Company APAC Ltd in Hong Kong, which would have gone on to be the world's biggest IPO of this year. The staggering fundraising amount wouldn't have just set a record, however. It was seen as a key move toward eliminating a portion of AB InBev’s $100-billion debt, which was taken on as part of its 2016 purchase of SABMiller

The IPO would have been an effective way to eliminate a portion of that debt, which has been a critical issue for AB InBev and its parent company, 3G Capital (which has also dealt with a similar burden with Kraft Heinz). AB InBev’s increased presence in China, and the potential for its IPO, were meant to be a win-win for a global company that has faced increased criticism and challenging relationships with creditors in the wake of its SABMiller purchase. That victory is on hold for now.

According to Reuters, the reversal of the decision to place Budweiser APAC on the Stock Exchange of Hong Kong was the result of "several factors, including the prevailing market conditions." The exchange has been riding record highs recently, but entered last weekend flat as the Chinese economy stays strong, but slows overall.

China—the world's #2 economy behind the U.S.—grew "only" 6.2% in the second quarter. That'd be welcomed by any country around the world, but it was the slowest mark for the Asian country in almost 30 years. The $9.8-billion IPO would have given Budweiser APAC a valuation of $64 billion, and put it on a better financial track to deal with the debt load from its acquisition of SABMiller—one of the largest mergers ever.

Reuters reported that potential investors balked at the IPO’s high price and what it meant for the Budweiser APAC valuation, putting the business “at a valuation multiple above that of peers.” The company manages more than 50 global brands, like Stella Artois and Corona, alongside its namesake products. Because of this, some of the most-needed investors made offers below the company's expected IPO range. Reuters went on to call it a "dramatic failure."


For years, Anheuser-Busch InBev has slowly been working its way into the Chinese market, and has been met with stiff competition. Last year, Heineken bought a 40% stake in China Resources Beer, the top-selling brewery in the country. Stone Brewing opened a location in Shanghai with plans to hire regional sales representatives in major cities. Spanish companies Mahou San Miguel and Gruppo Damm are also involved in China.

For its part, AB InBev has pursued various entry points into the Chinese market. It opened a facility in Wuhan last year to brew its Goose Island brands, as well as those of its Chinese investments, Kaiba and Boxing Cat Brewery, through its formerly-independent investment arm, ZX Ventures.

As GBH wrote last year in a story highlighting the importance of China in the global beer market, the superpower has become something of an “international land grab for some of the biggest names in beer.” A growing middle class with more discretionary income is forcing change for many industries and companies, including beer. At a time when the U.S. beer market is in decline, it’s a space AB InBev needs.

This situation is a good opportunity to look at the global impact of AB InBev. For a long time, the multinational maintained a primary focus on the U.S., in the form of  purchases of breweries and other alcoholic products, TV commercials, and attempts to offset decreasing interest from consumers. But the SABMiller deal was meant to solidify the global company’s standing in places outside America, including Africa, which it long saw as a key market with rising incomes and rates of beer consumption. Not long after the SABMiller merger agreement, AB InBev announced it would build a $400-million brewery to support its efforts in the central and southern portions of the continent. 

The reverberations from the canceled IPO are being felt outside China and Africa, too.

“What the cancellation of the IPO means is that probably it will take modestly longer for ABI to expand in the three countries it wants to grow in—the Philippines, Thailand and Vietnam,” analyst Nico von Stackelberg told Bloomberg, adding, “it’s only a matter of time before they get there.”

Given the size of Anheuser-Busch InBev and its need to find new revenue streams as a way to pay down its massive debt, the failure to sell stock in China may be more of a hiccup than a full-fledged financial illness. However, it doesn’t detract from the fact that the company has built its success on its size and efficiency—both in terms of brewing and in how it runs daily business. Slowing down expansion has the potential to compound problems as the multinational attempts to work through its significant debt and stay ahead of competition who also see Asia as critical to its growth.

These factors have been emphasized by credit agencies like Standard & Poor’s, which has given AB InBev’s debt an A- rating. According to S&P, the company is "somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions," although "the obligor's capacity to meet its financial commitments on the obligation is still strong." It was just in December 2018 that Moody's Investors Service also lowered AB InBev's credit rating to its lowest tier of investment-grade, putting it three levels away from a "junk rating" status.

However, the situation doesn’t necessarily mean the failed IPO was a lost opportunity—for now, at least.

One area to consider is a global exchange rate for the dollar. A Yahoo! Finance analysis notes that as emerging markets grow, like in Africa, postponing the IPO may be a necessary step for better rates down the line. Additionally, market forces in China are simply changing the way nearly all foreign companies are approaching the country. As the Chinese move into a more consumer-based economy with more options, it’s getting harder for global companies to have the same kind of unbridled success as they have in years past. Annual growth rates were in the double-digits a decade ago, which helped fuel easy investment.

“For a long time, if you were a foreign company, it really didn't matter what you were doing,” Trey McCarver, cofounder of the consultancy Trivium, told Marketplace. “Whatever you were doing was growing, and it was growing very quickly in China. It's a different story today.” 

There’s also the ongoing U.S.-China trade war, which could cause economic slowdown globally.

According to reports, the cancellation of the Budweiser APAC offering doesn’t preclude it from happening in the future. Along with the eventual IPO, if it does happen, options such as selling brands or stakes in properties offer the clearest path to eliminating some portion of AB InBev’s massive debt. But as market winds shift, and economic forces change conditions for the company, the perfect timing to pull it all off may be hard to come by.

Words by Bryan Roth