Silver Base's Wuliangye ties carry risk for share offering

For Silver Base Group Holdings, which distributes Wuliangye spirits on the mainland, its close relationship with the well-known high-end drinks maker is a double-edged sword.

Analysts said the Wuliangye brand gave Silver Base a certain guarantee of sales performance but its reliance on the drinks firm, its single biggest supplier, meant it would be hit hard if the relationship soured.

'Silver Base is not the sole distributor of Wuliangye's best-selling products, so it faces the risk of stiffer competition if Wuliangye grants distribution rights to more companies,' said Stanley Chik Yiu-fai, an analyst at Emperor Securities.

One fund manager said Silver Base was the first alcohol-related stock on the Hong Kong market, which would certainly attract investors, but the expiry of the distribution rights was a concern.

However, Kenny Tang Sing-hing, an executive director at Redford Asset Management, said Silver Base and Wuliangye could boost their co-operation through more distribution rights for a number of premier Wuliangye drinks. That was likely to be a positive share-price catalyst in the medium to long term, he said.

Silver Base, making its first overseas share sale in Hong Kong, is offering 300 million new shares at between HK$2.30 and HK$3.45 each to raise up to HK$1.04 billion to fund future expansion.