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Food & Beverage

Chinese province gets $14bn holiday gift of Kweichow Moutai shares

Local government to benefit from lucrative cash infusion

The shares donated to the Guizhou provincial government represent 4% of Kweichow Moutai's outstanding stock.   © Reuters

HONG KONG -- Many a Chinese official has, sometimes to their later regret, accepted the gift of pricey bottles of Kweichow Moutai liquor.

This holiday season, the state-owned parent company of Moutai has upped the ante by presenting the government of its home province of Guizhou with 50.24 million shares of China's most valuable domestically listed company -- a gift worth 91.95 billion yuan ($14.08 billion) at Thursday's closing price of 1,830.34 yuan in Shanghai.

For southwestern Guizhou, it is a gift to be treasured.

"China increasingly is asking its financially most successful firms to contribute to state coffers," said Andrew Collier, managing director at Orient Capital Research in Hong Kong. "Moutai has been wildly successful and has probably drawn some attention for its success, particularly as its home province is one of the poorest in China."

The gift, he said, is in line with "the increasingly difficult financial situation of many provinces and local governments."

According to a market disclosure dated Thursday from Moutai, the State-owned Assets Supervision and Administration Commission of the provincial government, which owns 100% of Moutai's parent company, ordered the donation of the stock, one of China's most popular domestic issues with foreign investors, to Guizhou Province State-owned Asset Operation.

The gift shares represent 4% of Moutai's outstanding stock. Following the grant, the stake held by the parent company of the sorghum-based baijiu hard liquor producer declined to 54%.

Interestingly, the parent also granted an equal number of shares to the same investment vehicle of the Guizhou government a year ago. The body kept hold of those shares until Moutai issued its annual dividend in June but has since sold more than 80% of the grant. Between the share sales and the dividend, the agency pocketed around 72 billion yuan.

Moutai is among the most profitable listed companies in China. It recorded net income of 33.82 billion yuan on revenues of 67.21 billion yuan during the first nine months of the year, up 11% and 10% respectively from a year ago. The company sat on 120.92 billion yuan of cash at the end of September on a consolidated basis.

Moutai has recently gotten attention for its own donations to local government causes and projects as well. In October, its board voted to contribute 546 million yuan for road construction in the distiller's home county and 260 million yuan to a local municipality for a sewage facility.

Questioning these donations, more than 200 shareholders are reportedly preparing to file a class-action lawsuit alleging the sums represent an illegal use of company funds.

Moutai has been under fire on other fronts as well. Since former chairman Yuan Renguo was arrested on corruption charges by the Communist Party's Central Commission for Discipline Inspection in May 2019, 13 other high-ranking officials have been placed under investigation or charged with similar crimes.

In July, Moutai was criticized by Xuexi Xiaozu, a new media platform under the wing of the People's Daily, in an article entitled, "Who is going to foot the bill for unpleasantly tasting Moutai?"

The piece referred to corruption scandals involving Yuan and other executives, as well as the widespread social custom of glorifying the value of bottles of Moutai, which has led to speculative trading at eye-watering prices and fueled bribes.

Fraser Howie, a Singapore-based financial market analyst, said gifts of shares by state-owned companies to government bodies have been "quite common in China over many years" and he doubted there would be any "immediate impact to the company business nor even to the share price."

Moutai shares slipped 0.6% Thursday.

"Murky is a good word to describe it," Howie said.

The Guizhou State-owned Assets Supervision and Administration Commission did not immediately respond to questions on why it had ordered the share donation.

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