Heineken finds taste for mainland beer
Heineken, the world's third-largest brewer, is considering grabbing market share in China by acquiring domestic breweries in the northern part of the country, official media said yesterday.
Heineken officials based in China declined to comment, but Heineken said in April it was considering buying Chinese beer brands but had not yet started concrete talks.
The Shanghai Daily newspaper quoted a marketing official of Shanghai Asia Pacific Brewery, in which Heineken owns a stake, as saying the Dutch brewer was in talks with several potential targets. It gave no names.
Shanghai Asia-Pacific Brewery is a joint venture between the city's Yimin Brewery and Asia-Pacific Breweries, creator of Tiger beer. Asia-Pacific Breweries' main shareholders are Heineken and Singapore's Fraser & Neave.
Shanghai Asia-Pacific Brewery already markets a local brand, Reeb, as well as Tiger beer.
Industry officials said it would make sense for Heineken to diversify into northern China, where beer consumption was higher.
If Heineken decided to produce and sell its own brand more widely in China, the north would also be a more suitable market, said Wu Jianhua, head of the Shanghai Brewing Association. The taste of beer popular in northern China was closer to Heineken while the people in southern China liked a lighter taste, said Mr Wu.
Heineken had pitched for the higher end of the market but had found competition against other premium beers fierce, he said.
A number of foreign brewers rushed into China in the 1990s but many found the market more difficult than they expected.
Foster's of Australia scaled back its operations, while Denmark's Carlsberg exited its major ventures. United States brewer Anheuser-Busch, which makes Budweiser, has managed to gain market share, while Japan's Asahi has made inroads through a joint venture with China's Tsingtao Brewery.
Meanwhile, the mainland's oldest and fourth-largest brewery, Harbin Brewery, said it aimed to raise HK$270 million of net proceeds from a main board listing expected on June 27.
About HK$150 million will be used to retire debts, including part of those incurred in the 245 million yuan (about HK$229.58 million) acquisition of three breweries in northeast China from Guangdong Brewery Holdings last August. Another HK$100 million has been earmarked to fund future expansion, including possible future acquisitions.
With a 3.6 per cent share of the mainland beer market, Harbin Brewery ranked after Tsingtao Brewery, China Resources Brewery and Yanjing Brewery. Management attempted to allay concerns on the company's heavy debt load, saying the present low interest rate environment favoured a higher debt gearing.
At the end of last year, it had about HK$753.89 million of interest-bearing debts, amounting to 222 per cent of its shareholders' equity. The debt ratio is expected to fall to about 100 per cent with the company's listing.
Market leader H share Tsingtao Brewery's interest bearing debt-to-equity ratio stood at 83.8 per cent at the end of June last year. On April 30, Harbin Brewery's total bank debt rose further to 889.3 million, according to its listing prospectus.
Executive director Peter Jeva Au said despite the high debt gearing the company had strong net operating cash flow, which amounted to 4.5 times its interest expense last year. The ratio was expected to rise to between six and seven times on listing, he added.
Unlike most main board listing candidates, Harbin Brewery did not provide a profit forecast in its listing prospectus, citing risks and uncertainties of integration of the breweries it acquired from Guangdong Brewery which doubled its production capacity to one million tonnes a year.
Graphic: beer18gbz
