Asahi seeks to sell Tsingtao stake as it looks to Europe

An exhibition of Asahi beer's history at one of its breweries in Osaka. The sale of its Tsingtao stake would help Asahi as it pursues more acquisitions to boost its overseas business, after it agreed last year to buy about US$11 billion of SABMiller
An exhibition of Asahi beer's history at one of its breweries in Osaka. The sale of its Tsingtao stake would help Asahi as it pursues more acquisitions to boost its overseas business, after it agreed last year to buy about US$11 billion of SABMiller brands in Europe.PHOTO: AGENCE FRANCE-PRESS

BEIJING • For a foreign brewer hoping to gain an edge in the Chinese market, it seemed like the ideal alliance: Japan's largest beer-maker teaming up with one of China's premier brands.

Yet, Asahi Group Holdings' 2009 purchase of a minority stake in Tsingtao Brewery didn't produce the opportunities that the Tokyo company hoped for.

Eight years later, Tsingtao still doesn't sell Asahi's flagship "Super Dry" lager in China. On top of that, Tsingtao now faces more competition from foreign brands and local craft beers, crimping profits.

That likely prompted Asahi to seek an exit. The Japanese company picked Morgan Stanley to advise on the potential sale of its Tsingtao minority stake, people with knowledge of the matter said this week.

Asahi's 20 per cent holding in Tsingtao is worth about US$1.1 billion (S$1.6 billion) based on the current share price, data compiled by Bloomberg shows.

Shares of the Chinese brewer dropped as much as 2.9 per cent yesterday in Hong Kong. The stock surged 6.6 per cent on Thursday, the biggest gain since September 2015. Asahi shares dipped as much as 0.1 per cent.

The sale of the Tsingtao stake would help Asahi as it pursues more acquisitions to boost its overseas business, after it agreed last year to buy about US$11 billion of SABMiller brands in Europe. It also comes as Chinese brewers contend with a beer market decline brought on by an economic slowdown and consumers' palates shifting to wine.

"Asahi has concerns that the China market is not fast-growing," said Daiwa Capital Markets analyst Anson Chan. "Tsingtao is already the most high-end brand among local brands in China, so it is in direct competition with foreign brands and it has been losing market share to them."

Asahi's plans to sell the Tsingtao holding are at an early stage, and no final decisions have been made, people with knowledge of the matter said, asking not to be identified because the information is private.

Asahi president Akiyoshi Koji said in an interview that the company will decide this year on options for its stake in the Chinese firm.

Mr Koji noted Tsingtao's "worsened" earnings result in the interview this month. "Unfortunately, Tsingtao is not selling 'Super Dry'," he said. One lesson from the Tsingtao investment, he said, is that "ownership without control doesn't make much sense".

Representatives for Asahi and Morgan Stanley declined to comment. Tsingtao said in a Hong Kong exchange filing on Thursday that it will keep monitoring the situation and continue communication with Asahi. A spokesman for the Chinese brewer declined to comment beyond the statement.

"Investors are expecting Tsingtao would be able to get a new strategic partner who can inject momentum and revitalise the brand," said UOB Kay Hian executive director Steven Leung. "Asahi has been sitting on this investment for so long and hasn't been able to give much boost to Tsingtao's overseas expansion."

The overall beer market in China has declined 6 per cent in volume since 2013, according to Euromonitor International. As the Chinese economy slows, mid-market brands like Tsingtao are squeezed, said China Market Research Group managing director Shaun Rein.

Some consumers are looking for lower-priced beers, while more affluent Chinese are switching to pricier craft beers or wine. "Tsingtao is in trouble," said Mr Rein. "It's not premium enough, and it's not cheap enough."

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on January 28, 2017, with the headline 'Asahi seeks to sell Tsingtao stake as it looks to Europe'. Print Edition | Subscribe