AB InBev to push beer sales after failed Asian listing

AB InBev’s cancelled Asian stock market listing will slow but not derail the world’s largest brewer’s efforts to cut its debt, delaying future acquisitions and prioritising its main challenge: selling more beers.

The Belgium-based company on Friday shelved plans to list its Asian Pacific business in Hong Kong in what would have been the world’s biggest initial public offering so far in 2019.

The brewer has said that even without the flotation of a minority stake in the Asian division, Budweiser APAC, it will reduce its net debt to core earnings (ebitda) ratio to below four times by the end of 2020 from 4.6 at the end of 2018.

But the Hong Kong listing would almost have completed that task, bringing in $8bn$10bn and reducing the ratio by up to 0.5 percentage points.

Refinitiv Eikon data show AB InBev’s earnings steadily increasing in the coming years, with net debt dropping below $100bn by the end of 2019 and the ratio to ebitda declining to 4.2, followed by 3.7 and 3.2 in 2020 and 2021.

The growing prospect of a US Federal Reserve interest rate cut may have eased the pressure on AB InBev, which would benefit from a weaker dollar, but it is still not plain sailing.

Analysts at Jefferies said the slower rate of cutting debt could deter conservative investors and increased risks related to foreign exchange volatility, which has cost AB InBev $2.3bn since 2016 just short of the cost savings from its $100bn-plus takeover of SABMiller.

AB InBev has relied on a combination of acquisitions and related savings with broader cost-cutting to boost profits but has recognised in the past year that it needs to put more emphasis on selling greater beer volumes.

Sales in the US, its largest market, continue to fall, though at a slower pace. It has increased its marketing efforts and adopted a more regional focus. In developing markets, the company is pushing higher-priced “premium beers” harder.

The 2016 purchase of nearest rival SABMiller, which pushed AB InBev’s net debt above $100bn, has yielded profitable markets in Latin America but challenges in SA.

AB InBev itself described the Asian flotation less as a debtreduction tool and more as a means to create a regional champion to drive local consolidation.