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Anheuser-Busch scraps its US$9.8 billion IPO for Budweiser in Hong Kong, scuppering world's largest fundraising plan of 2019

Cheryl Arcibal cheryl.archibal@scmp.com

Anheuser-Busch InBev has scrapped what could have been the largest global initial public offering (IPO) of 2019 in Hong Kong, in a setback to the city's plan to catch up with New York as the world's fundraising hub.

"The company is not proceeding with this transaction due to several factors, including the prevailing market conditions," Anheuser-Busch said in its announcement to scupper its US$9.8 billion IPO. "The company will closely monitor market conditions, as it continuously evaluates its options to enhance shareholder value, optimise the business and drive long-term growth, subject to strict financial discipline."

The decision came after the unit Budweiser Brewing Company APAC failed yesterday to price its IPO, which was expected to be offered at the lower end of a range of between HK$40 and HK$47 per share, according to a person familiar with the IPO, and a fund manager briefed by bookrunners of the deal.

According to its financing schedule, Anheuser-Busch had to price its Budweiser stock by Monday, for the shares to debut on July 19 in Hong Kong. Depending on the final pricing, Budweiser is potentially raising US$8.3 billion to US$9.8 billion from the listing, surpassing Uber, which raised US$8.1 billion in New York in May to become the world's largest IPO this year.

Hong Kong third in global IPO rankings for stock exchanges alt=Hong Kong third in global IPO rankings for stock exchanges

Belgium-based Anheuser-Busch has picked an inopportune time to tap the financial markets, as Hong Kong is still reeling from the aftermath of a controversial extradition bill, where thousands of protesters still take to the streets around the city, more than a month after 1 million people voiced their opposition in a mass rally.

The city, a financial hub for Asia and an entry point for mainland China's massive consumer market, is also squeezed by the year-long US-China trade war, which has forced companies to defer and reconsider their expansion in the city. Amid the downbeat sentiments, ESR Cayman Limited announced on June 13 that it would cancel a Hong Kong IPO plan, that could have raised between US$1.16 billion and US$1.24 billion, according to a Reuters report.

Global investors have subscribed for more than US$10 billion worth of Budweiser shares. Still, about 70 per cent of these orders are from hedge funds who bought at prices near the bottom end and tend to hold for the short term, according to a fund manager who declined to be named.

The remaining investors are global long-only funds. Chinese long-only funds have snubbed the offer in favour of Hong Kong-listed China Resources Beer, a brewing company headquartered in Beijing.

The lack of institutional support for the share has some investors worried that it may slip beneath its offer price during next week's debut.

The offeror "wants to sell the share at HK$47 apiece, but the market sentiment seems to be inclining toward Hk$40 and that's a huge discount," said Louis Tse Ming Kwong, managing director of VC Asset Management. "So the major factor is fixing the share price at the right level."

Another worry is that China's consumption of beer and other alcohol could be dampened by a government crackdown on organised crime since the start of the year, which has hurt business at karaoke bars and late-night restaurants in cities across China.

"The listing could be suspended or withdrawn if the company cannot set the price on Monday," said Steven Tse, senior equity research analyst at Hong Kong brokerage SBI China Capital.

Cases of Budweiser beers are displayed in a Shanghai's supermarket on October 24, 2004. Photo: Agence France-Presse alt=Cases of Budweiser beers are displayed in a Shanghai's supermarket on October 24, 2004. Photo: Agence France-Presse

The Hong Kong retail tranche of the offering, accounting for 5 per cent of the overall shares, was estimated by local brokerages to be 3.7 to 5 times oversubscribed, a tepid response in comparison to interest such mega listings have attracted from local investors in the past.

The huge scale of the listing led to a drop in local cash deposits, triggering a surge in Hong Kong's interbank lending rate (Hibor), or the rate at which banks lend to each other. As interest rates rose, retail investors became less enthusiastic towards the listing offer, brokers said.

One-month Hibor spiked to 2.99 per cent late last week, the highest level since October 2008, before easing to 2.18 per cent on Friday.

Budweiser sells more than 50 beer brands in 39 territories, and counts China, Australia, South Korea, India and Vietnam among its key markets in Asia-Pacific.

The brewer is the largest by sales in China, according to data from industry consultancy GlobalData cited in Budweiser's prospectus.

The company focuses on high-end beer, which represents the fastest-growing segment in the Asian market, according to GlobalData.

Proceeds from the listing will be used to repay loans due to AB InBev subsidiaries, according to the listing prospectus.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.