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AB InBev’s Asia unit rises in world’s second-biggest IPO of 2019

Raises $5bn in Hong Kong listing.

The Asia-Pacific beer unit of Anheuser-Busch InBev NV gained as much as 4.8% in its Hong Kong trading debut, a positive for the lackluster global market in initial public offerings and vindication for the beermaker in its second attempt at an Asian listing.

Budweiser Brewing Company raised $5 billion selling shares at the bottom of a price range last week, in the world’s second-biggest IPO this year behind Uber Technologies. That gave the Asian unit an enterprise value of $45 billion, helping the parent company reduce its massive debt load and laying the groundwork for possible future acquisitions.

The shares rose to as high as HK$28.30, up from the offering price of HK$27. The benchmark Hang Seng Index was little changed as of 10:30 a.m. in Hong Kong.

“We’ve seen very solid demand for our stock when we did the management roadshow,” said Jan Craps, chief executive officer of Budweiser Brewing APAC, in a briefing in Hong Kong on Monday. “We are confident there’s a strong foundation here.”

The result provides an encouraging conclusion to what’s been a rocky IPO path for the Asia arm of the world’s biggest beer company. Budweiser Brewing originally expected to storm into Hong Kong as a $64 billion company, but the deal was shelved in July amid lackluster demand. It was a high-profile setback that highlighted the growing disconnect between companies’ lofty private valuations and investors’ expectations, with would-be buyers skeptical of even well-known brands.

Second try

AB InBev revived the offering after selling its Australian operations to Japan’s Asahi Group for about $11 billion. That roughly halved the size of the Asia-Pacific offering, giving investors a more focused stake in faster-growing parts of the regional business, with brands like Cass in South Korea and Harbin in China.

“It is certainly a more reasonable level than the first time around,” Andrew Sullivan, director at Pearl Bridge Partners, said of Budweiser’s valuation on Bloomberg Television. “Looking forward, it gives them an opportunity to build more deals in Asia.”

The gains in Budweiser’s trading debut may give some hope to a global IPO scene unsettled this year by volatile markets and geopolitical uncertainties. That’s particularly the case for Hong Kong, which is facing twin pressures from anti-government protests that show no sign of abating and a trade war between the US and China.

Budweiser’s launch helps propel Hong Kong past Shanghai as the world’s No. 3 market for IPOs this year. It may also shore up investor sentiment for a pipeline of upcoming IPOs that may include the lucrative secondary listing of Alibaba.

The share offering helps AB InBev further trim down its $100 billion-plus debt pile after its purchase of SABMiller in 2016, letting it accelerate its goal of creating a regional champion in Asia, especially through acquisitions.

CEO Craps has said the IPO will give the business more flexibility to pursue deals, and that it will focus on areas where it isn’t yet the market leader. In the briefing Monday, he said the company can create a lot of value with regional players in Vietnam, Thailand and Cambodia.

The sale of the Australian unit to Asahi lopped off about one-fifth of the Asia-Pacific unit, cutting its annual sales to about $6.7 billion, according to the latest preliminary prospectus. But the deal increased Budweiser Brewing’s 2018 growth rate by more than a percentage point, to 7.4%, as it removed operations in a more mature market.

Track record

The track record for IPOs hasn’t been very impressive recently. In the US, this year’s IPOs have been lagging behind the market, climbing about 6.5% from their offering prices on average, while the S&P 500 has gained 18%.

Fitness startup Peloton Interactive on Thursday dropped 11% on its first day of trading. That same day, the Hollywood agency Endeavor shelved its IPO, saying unfavourable market conditions have dented investor sentiment. Poshmark, an online resale marketplace for second-hand clothing, is expected to postpone its IPO into next year. WeWork, the office-sharing company, was forced to put off its offering to next year in the face of tepid demand.

Uber, Lyft and SmileDirectClub are all down more than 29% from their offer price.

© 2019 Bloomberg L.P.

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