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Food & Beverage

Vietnam's top beer maker Sabeco loses its fizz

Earnings take hit from pandemic and crackdown on drunken driving

Men drink beer on the street in Hanoi. The maximum fine for drunk driving on motorcycles has doubled to $340.   © Reuters

BANGKOK/HANOI -- 2020 has not been good to Saigon Beer Alcohol Beverage.

Also known as Sabeco, Vietnam's top beer producer has suffered a major blow to earnings this year from a combination of tougher drunken-driving penalties and the coronavirus pandemic. Now, with the government weighing a sale of its remaining stake in the company, its outlook is murkier than ever.

"We don't drink in big groups as much anymore," said a 45-year-old customer at a Hanoi bar on a recent Friday evening. "Look, there's no one here."

Drinking beer is one of Vietnam's national pastimes. But even popular bars have struggled to fill their seats after the government in January enacted harsh penalties for drunken drivers. Those on motorcycles, the primary mode of transportation, now face a fine of up to 8 million dong ($345) -- double the previous penalty -- and could have their license suspended for up to two years.

Combined with pandemic-induced lockdowns, Vietnam's thirst for beer has waned. Consumption dropped 23% on the year in the January-June half and is only recovering slowly.

Sabeco, known for its Saigon Beer and 333 brands, has decreased output 30% this year and is on track for a 39% drop in net profit to 3.25 trillion dong, according to SSI Securities. Sabeco's stock price is down roughly 20% from the beginning of the year.

Vietnam is the largest consumer of beer in Southeast Asia. It also ranks third across Asia as a whole, behind only China and Japan, according to Japan's Kirin Holdings. The company said Vietnam consumed 4.66 million kiloliters in 2018, up 7% from the year before. Given Vietnam's relatively young population, brewers from around the world have kept a close eye on the market's potential.

Sabeco, Vietnam's largest brewery, operates the Bia Saigon and 333 brands. (Photo by Tomoya Onishi)

So when the government decided to sell a majority stake in Sabeco, which controls roughly 40% of the Vietnamese market, it attracted bids from across the world. Thai Beverage, the producer of Chang beer, won the deal in 2017 for what was then the equivalent of about $4.8 billion.

But the recent developments have squeezed Sabeco's earnings. Further complicating matters is the government's announcement in late June that it would sell its remaining stakes in about 130 companies, including Sabeco.

The government transferred its 36% stake in Sabeco to the State Capital Investment Corp. at the end of August, with plans to unload it by the end of the year. Based on the current stock price, the sale could be priced at roughly $1.8 billion.

The decision to sell Sabeco stock, despite the plunge in its price, is driven largely by politics. Vietnam's ruling Communist Party is holding its national congress next year, when it will choose its leadership for the next five years. Completely privatizing Sabeco would be a win for the current leaders. The government had also cracked down on drunken driving to allay public concerns over a string of accidents. The combination of the two has proved a heavy blow to Sabeco.

Singapore-listed ThaiBev is considered the most likely buyer for the Sabeco stake. But recent reports suggest the company may be considering selling shares it already has in the Vietnamese unit.

ThaiBev has repeatedly dismissed these reports. On purchasing an additional stake in Sabeco, ThaiBev CEO Thapana Sirivadhanabhakdi said only that he will "keep an eye on all opportunities" in a Thursday news conference.

"Sabeco is a difficult company for a foreign corporation to control in the first place," an industry insider said, pointing to the intertwined interests within the company dating back to its time under state control.

Sabeco has also been a drag on ThaiBev's financial results recently. "If ThaiBev buys more Sabeco stock, it could end up with greater losses," a brokerage analyst said.

The additional stake sale has kept Sabeco from focusing on the shift in Vietnam's beer market. Unless a swift decision is made, the company could face further deterioration in its earnings.

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