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China Resources Beer shares down 4% after rights issue

Shares of state-backed China Resources Beer closed down 4.1% at 16.26 Hong Kong dollars on Wednesday after it announced a rights issue to fund the buyout of the world's best-selling beer from joint-venture partner SABMiller.

The beer producer said it would issue 811.04 million rights shares in order to raise approximately 9.5 billion Hong Kong dollars ($1.22 billion) -- a sum that will partially cover the $1.6 billion transaction of a 49% stake in China Resources Snow Breweries announced in March.

The deal was apparently the result of the merger between Belgium brewer Anheuser-Busch InBev and U.K.-based SABMiller. Their combined market share in China, topping 40%, was said to have triggered antitrust concerns. Selling down Snow, which commands a quarter of the Chinese market, would increase the likelihood of gaining regulatory approval.

Brushing off competition worries, Lai Po-Sing, China Resources Beer's chief financial officer, said at a briefing on Wednesday that "there is no foreseeable stumbling block" to the company's acquisition so far.

"We are very confident that it can materialize," said Lai, adding that the company is considering using internal resources, external financing, and borrowings from parent company China Resources Holdings, to fund the rest of the deal.

The rights issue, likely to be the largest in Hong Kong since last year, is claimed to be fully underwritten by CRH Beer, a controlling shareholder of China Resources Beer and affiliate under the same parent.

The parent's pledge of absolute support, said Lai, is "a reflection of [its] optimistic outlook for the beer industry in China" as well as China Resources Beer. "It is not looking to increase control of the company at all."

Excluding the divested non-beer business, the group recorded a 14% surge in underlying profit to HK$831 million and a 3.2% increase in average selling price in 2015. However, its revenue at HK$34.8 billion was flat compared with a year ago.

A slowing economy and maturing consumer tastes on the mainland has hurt the company which has long been relying on the mass market.

"China's beer market in the first half is not doing very well," said Hou Xiaohai, China Resources Beer's CEO. "It's unlikely that the second half will see an upturn, as macroeconomic conditions remain bleak."

Hou reiterated that the company will focus more on the mid- to high-end markets. Launching "distinguishing" beers is one way to cater to a more sophisticated consumer segment. But he emphasized that prices would not be revised upward drastically.

The company could not specify when the transaction of Snow would close, but said it had "no plans for other merger and acquisition" at the moment. "Market consolidation will surely continue," said Hou. "We're open to such opportunities."

7 Jul. 2016

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