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Budweiser up 4.4% after completing Hong Kong's biggest IPO this year

After raising $5bn, brewer outperformed Hang Seng's 0.5% rise on debut

The regional arm of Anheuser-Busch InBev Group, the world's largest brewer, brought in $5 billion in IPO proceeds.   © Reuters

HONG KONG (Nikkei Markets) -- Budweiser Brewing Company APAC kicked off its stock trading in Hong Kong on a positive note on Monday after the regional unit of the world's biggest brewer raised HK$39.20 billion ($5 billion) in gross proceeds from its second attempt at an initial public offering in the city.

Its shares opened at HK$27.40, compared with their IPO price of HK$27, and rose as high as HK$28.90 before closing the day at HK$28.20. About 262 million shares changed hands on Monday, easily making the stock the most actively traded in Hong Kong. The city's benchmark Hang Seng Index advanced 0.5%.

The issue, which was earlier set in an indicative range of HK$27 to HK$30 each, was priced at the lower end of that band. The company, owner of popular brands such as Corona, Stella Artois and Harbin, had issued 1.26 billion shares under a base offer, in addition to 189.4 million shares under a so-called offer size adjustment option. Singaporean sovereign wealth fund GIC Private had agreed to subscribe to $1 billion of shares in the offering as a cornerstone investor.

Castor Pang, head of research at Core Pacific Yamaichi International, noted that while the stock wasn't particularly cheap at the offer price, it was unlikely to drop under that level as the offering's underwriters were likely to keep it supported. However, the stock was also unlikely to shoot up much further, unless there was an improvement in broader market sentiment, he added.

In a report earlier this month, analysts at Bernstein Research described the company as the "highest quality consumer stock in China, if not Asia-Pacific," and that the IPO price well reflected that perception. The offer price of $27 a share implied a valuation of 20.2 times the company's enterprise value over its earnings before interest, tax, depreciation and amortization, and the brokerage saw a 9% upside over 12 months from that level, they said.

"The pricing range looks to have been carefully crafted to weed out investors looking to make a quick buck," and to attract long-term investors willing to hold it for "the compounding effects of growth," the Bernstein analysts added.

Although Budweiser Brewing's offering was significantly smaller than the $9.8 billion issue that the brewer had attempted in July, the IPO is still the largest in Hong Kong this year. Budweiser Brewing had cited market conditions as one of the reasons for the withdrawal at that time, as the Sino-American trade war and mass protests that began in Hong Kong in June weighed on sentiment. The company's offering excludes certain Australian operations, which it is selling to Japanese brewer Asahi Group Holdings.

Although the trade war and protests in the city continue to be unresolved issues, company officials pushed ahead with the offering this time around.

"It is a very challenging time in Hong Kong, but we are confident about its strong foundation," Chief Executive Officer Jan Craps told reporters at a press conference on Monday. "We have seen very solid demand for our stock when we did our roadshow."

The company could raise more money if a separate over-allotment option for 217.8 million shares, or 15% of the base offering, is exercised.

Budweiser Brewing is the largest beer maker by value in China, and held the leading position in premium categories of beer by both value and volume in 2018, according to its prospectus. It was also the top beer maker in South Korea by value and volume, and a top three player in India by both measures.

AB InBev will control 88.86% of Budweiser Brewing if the over-allotment option isn't exercised at all, and 87.22% if the option is exercised in full. AB InBev intends to apply all of the proceeds to repay its debt.

J.P. Morgan and Morgan Stanley are the joint sponsors for the offering.

- By Benny Kung

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