Diageo expands in China with Shuijingfang deal

LONDON (REUTERS) - Diageo, the world's biggest spirits group, has taken a controlling stake in China's white spirits company Shuijingfang, investing further in a key market that has shown signs of slowing.

The British group said on Tuesday it had acquired a 100 per cent of a holding company which would increase its ownership of the Shanghai-listed firm from 21 per cent to 39.7 per cent in a deal worth 233 million pounds (S$452 million).

Diageo, the maker of Johnnie Walker whisky, has been increasing its stake in the business for the last six years as part of an overall drive to increase its presence in emerging markets.

"This represents positive news in our view in relation to Diageo's strategy of increasing its emerging market exposure," Shore Capital analyst Phil Carroll said in a note.

However he added that the timing was not ideal, following a general slowdown in the Chinese economy relative to recent years and a crackdown on extravagant consumption and giving gifts for favours by a government which fears it can feed corrupt habits.

"That said, it has taken Diageo six years to get to this point in the transaction and it is looking at developing assets such as SJF on a medium to long term basis," Shorea analyst Carroll said.

"Given the clear high barriers to entry for such assets, we believe this deal should position Diageo well for the future."

European drinks makers, along with other consumer goods companies, have expanded into fast-growing emerging markets such as China in recent years, hoping to offset slowing sales of premium spirits in austerity-hit Europe.

But China has turned more difficult of late.

Remy Cointreau predicted earlier this month that demand for its flagship cognac brand in China would remain sluggish in the second quarter after the government's drive to rein in conspicuous consumption hit first-quarter sales.