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AB InBev Prices APAC Unit at HK$27, Eyes Debt Reduction

Zacks Equity Research

Anheuser-Busch InBev SA/NV BUD alias AB InBev recently decided to price the IPO of its Asia Pacific (APAC) subsidiary Budweiser Brewing Company APAC Limited on the Hong Kong Stock Exchange at HK$27 per share. The IPO is against 1,262,350,000 shares of a minority stake in the subsidiary, followed by an additional issue of 189,354,000 shares to fulfil market demand. Quite apparent, AB InBev will own a majority interest in Budweiser APAC.

Moreover, the brewer’s IPO is subjected to an over-allotment option of nearly 217,755,000 additional shares at the same price. Per sources the pricing is taking place at the lower end of the indicative range of HK$27-HK$30, thus expected to produce gross proceeds of around $5 billion before exercising the over-allotment option. However, if the allotment option is fully exercised, then an estimated $750 million of additional proceeds are likely to be raised.

AB InBev expects to utilize the proceeds from the IPO to lower its debt that soared to $104.2 billion as of Jun 30, 2019.

Other Details

Budweiser APAC is expected to trade beginning Sep 30 under the stock code 1876 on the Hong Kong Stock Exchange. The subsidiary will have a beneficial relationship with AB InBev, operating under the company’s corporate governance standards and also benefiting from its strong brand portfolio.

Furthermore, AB InBev will control 88.86% at the end of the exercise period, only if the over-allotment option is not exercised. Otherwise, the unit will control 87.22% at the end of the exercise period.

AB InBev in July had planned for a bigger IPO of its APAC subsidiary to raise roughly $9.8 billion but it did not materialize due to tough market conditions. Had AB InBev successfully achieved its target, the IPO would have been the world’s biggest public offering of 2019, outpacing the $8.1 billion raised by Uber Technologies, Inc. UBER in May.

Nevertheless, the latest IPO, which is estimated to generate roughly $5 billion, will still be the second-biggest IPO this year. Further, AB InBev’s agreement to divest its Australian arm to Japan’s Asahi Group Holdings, Ltd. for nearly $11.3 billion, makes the offering attractive. Excluding the sluggish Australian operations, the company is expected to focus more on the fast-growing markets like China, India and Vietnam.

IPO Comes Amid Political Upheavals

Analysts expect this $5-billion IPO to provide a significant boost on the Hong Kong bourses at the moment. The IPO is likely to cushion the stock market as the U.S.-China trade tensions and the ongoing anti-government protests in the city are presently shaking the market. In fact, these protests have induced China's e-commerce giant Alibaba Group Holding Ltd BABA to delay its $15-billion listing on the Hong Kong exchange.

AB InBev’s Performance & Other Stock

Shares of AB InBev have surged 47.8% so far this year, outperforming the industry’s 29.4% rally. The leading brewer carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Another stock worth considering from the Beverages-Alcohol space is Diageo plc DEO, which has a similar Zacks Rank as AB InBev. Diageo boasts an impressive long-term earnings growth rate of 8.1%

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