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CHINA/HONG KONG: Kingway Brewery eyes sale on weak profits

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Kingway Brewery has said that it will consider selling all or part of its business, offering multinational brewers an opportunity to increase their scale in China's growing beer market.

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Hong Kong-listed Kingway said at the weekend that weak profits have forced the group to begin a strategic review of its business. It said that this will include a possible sale of assets or equity, and could lead to a takeover of the entire company.

Multinational brewers are likely to be monitoring the situation as they jostle for position in China's beer market, which is already the world's largest and is still growing.

Kingway, which suspended trading on the Hong Kong stock exchange on Friday (20 January), said that it "plans to commence discussions with certain independent third parties principally engaged in the manufacture and distribution of beer products". It added: "It is expected that such third parties will be invited to submit proposals and indicative offers for possible acquisition of certain of the group's brewery business and assets." 

The brewer added that it will also consider leasing out its facilities. For now, it said that no deals have been agreed. It added that any deal would have to meet its valuation, as well as protect existing jobs.

Despite rising beer sales in China, Kingway said that it has struggled to turn a profit in the last few years. In 2009, it returned to profit after two years of losses, but the firm said that it "continues to face significant challenges". In August, Kingway reported an 84% drop in half-year net profits, to CNY1.46m (US$0.23m), although net sales increased by 14%.

Last year, SABMiller's joint-venture in China, CR Snow Breweries, almost acquired a 21% stake in Kingway from Heineken and Fraser & Neave's joint-venture, Asia Pacific Beverages. But, Kingway's majority shareholder, GDH, vetoed the deal and, subsequently, GDH bought the stake itself. 

At the time, a source close to the situation told just-drinks that GDH was expected to try to resell the stake for a higher price at some point in the future.

Kingway plans to resume trading on the Hong Kong stock exchange on 26 January.


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