Brewer Anheuser-Busch InBev is considering listing a minority stake in its Asian operations to create a separate business that could lead consolidation of brewing in the region.
The announcement, released at the same time as the company's first-quarter results on Tuesday May 7, follows reports that the company had enlisted banks to work on a partial sale of the Asia-Pacific business.
The brewer is saddled with more than $100 billion in debt after its 2016 purchase of nearest rival SABMiller and ultimately wants to bring its net debt to core profit (EBITDA) ratio down to two from 4.6 at the end of 2018.
The Belgium-based company, whose beers include Stella Artois, acknowledged that a minority stake listing would accelerate this process, but said its commitment to reduce the multiple to below four by the end of 2020 was not dependent on it.
The company said the main merit of a Hong Kong listing would be to create a champion in the Asia-Pacific, where sales are still growing and increasingly wealthy consumers are trading up to higher margin premium beers, such as its Budweiser or Corona.
AB InBev chief financial officer Felipe Dutra told Reuters that a parallel could be drawn with Brazilian subsidiary AmBev, of which AB InBev owns 61.9%. It is now present in 16 countries in the Americas, including Argentina and Canada.
Analysts at Jefferies said that $40-50 billion would be a reasonable valuation for the Asia-Pacific business, meaning that the company might be able to reduce debt by up to $20 billion.
Unrivalled Asian Business
The company's Asian business would be unrivalled among listed consumer packaged goods companies in the region in terms of cross-country exposure and scale, Dutra said.
AB InBev's Asia-Pacific region, whose main markets are China and Australia, last year made up 18% of group volume and 14% of underlying operating profit. Its revenues were $8.47 billion.
"Not only is it an attractive region from an investor standpoint, but is a kind of exposure that some existing shareholders of existing operations in the region might be willing to be part of," he said.
Dutra declined to say if AB InBev had talked to other regional brewers. Potential partners might include ThaiBev or San Miguel of the Philippines.
For its first quarter, AB InBev said EBITDA came in at $4.99 billion, an organic increase of 8.2%.
The overall figure was below the average forecast of $5.06 billion in a Reuters poll, but above the 7.9% consensus rise in a poll compiled by the company.
AB InBev strips out changes in scope and currencies for its "organic" changes. Analysts said the mismatch between a greater than expected organic rise and a lower than expected absolute figure was likely due to a heavier impact of foreign currencies.
The company's share in its largest market, the United States, slipped by 0.1 percentage points, but margins expanded as its higher priced beer such as Michelob Ultra grew.
Beer volumes in Brazil, its second largest market, rose by 11.3%, helped by the later timing of Carnival this year.
However, challenging economic conditions in Argentina and South Africa led to lower beer sales there. The later timing of Easter in 2019 also capped earnings in some countries.
The company's shares, which fell by 38% last year over concerns about AB InBev's debt and performance in its two largest markets, are up by more than a third in the year to date.
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