CHINA: Analysts see S&N Chongqing investment likely
Analysts believe Scottish & Newcastle is likely to up its investment in Chongqing Brewery Co. following reports that the parent of the Chinese brewer plans to inject all of its brewing businesses into the listed subsidiary.
Hua Zheng Xing, chairman of the state-owned Chongqing Beer (Group) Co. and largest shareholder in Chongqing Brewery, told Reuters yesterday (13 December) that the company planned to list all of its brewing assets.
Hua said Chongqing Beer would start work on the plan in six months' time as the company looks to boost sales in China's buoyant, but fledgling, beer market.
S&N, the UK's largest brewer, bought a 19.5% stake in Chongqing Brewery two years ago. That stake has since been diluted to 17.5% as shares in the Chinese brewer have been issued to public shareholders.
Chongqing Brewery is a key player in the south-west of China and dominates the local beer market in the city of Chongqing. Its closest competitor in the region is SABMiller associate CR Snow Breweries, which is present in the neighbouring province of Sichuan.
UK-based investment bank Dresdner Kleinwort said it believes that S&N is "likely" to bring its stake in Chongqing Brewery back up to 19.5% once the enlarged company is listed next year.
However, the bank predicted that S&N would have to pay "considerably more" than the GBP35m (US$68.7m) it initially spent in 2004 - and estimated at an investment of "closer to GBP100m".
The bank added: "Increasing the investment is likely to be bad for returns, but good for growth, as S&N ends up with a stake in a larger entity."
Officials at S&N could not be reached for comment as just-drinks went to press.
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