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AB InBev seeks Plan B after investors bail on 2019's biggest IPO

Standard & Poor's has a negative outlook on AB InBev's debt, which it ranks A-, the fourth lowest investment grade.


THE demise of Anheuser-Busch InBev's blockbuster initial public offering in Hong Kong leaves the world's largest brewer in a bind.

After reversing course last Friday over plans to sell a stake in its Asian unit to raise as much as US$9.8 billion, the Budweiser owner needs to find a new way to reduce its US$100 billion debt pile and mollify shareholders, while reinvigorating a business that's lost its fizz and keeping credit-rating agencies at bay.

Standard & Poor's has a negative outlook on AB InBev's debt, which it ranks A-, the fourth lowest investment grade.

"Any missteps in debt reduction due to reduced profitability could lead to further downgrades," Bloom-berg Intelligence analysts Hoai Ngo and Madeleine Hart wrote in a note.

Here are a few options the company could pursue:

  • Cut costs. AB InBev was built over three decades via acquisitions, followed by cost cuts, as scores of beer brands around the globe were brought under the same roof.

By eliminating overlapping functions it has become the most profitable major brewer in the world, with operating margins more than double those of its nearest rival, Heineken.

The downside of further operational efficiencies is that AB InBev has been trying to show a friendlier face since the financial meltdown at Kraft Heinz, a company that shares board members with the brewer.

Investors might wonder about the pace of growth if AB InBev takes a knife to marketing and other outlays in a bid to cut its debt, while refraining from acquisitions.

"What the cancellation of the IPO means is that probably it will take modestly longer for ABI to expand in the three countries it wants to grow in - the Philippines, Thailand and Vietnam," said Nico von Stackelberg, an analyst at Liberum, although he added that "it's only a matter of time before they get there".

  • Revisit an IPO. The company could sit tight for a while and then return at a later date and launch a new listing campaign.

The downside is that potential investors now have the upper hand, given that the company has tried once and failed to find enough buyers. That could make pricing tough the second time around.

The company may also explore selling a minority stake in the Asian business, Budweiser Brewing Company APAC, although there is no immediate plan for a deal, people familiar with the matter said.

  • Sell assets. AB InBev's dealmaking culminated in the "megabrew" combination with SABMiller three years ago. To secure antitrust approval, the company had to sell a number of assets, including Peroni, Grolsch and Pilsner Urquell in Europe and its stake in MillerCoors in the US.

The company still owns more than 60 beers worldwide, ranging from household names like Budweiser, Corona and Stella Artois to local labels like Boxing Cat in China and Brahma in Brazil.

As Japan's Asahi Group Holdings expands its presence in Europe and Heineken and Carlsberg push further into Asia, more brands could change hands.

The downside is that AB InBev's business is built on scale and back-office efficiencies. Paring back could undermine that model. And few beer brands fetch top dollar these days, limiting the appeal of any sales.

  • Cut dividend again. AB InBev could seek to reduce payouts to investors as it prioritises the management of its debt load over maintaining its reputation as one of the most shareholder-friendly companies in the consumer goods industry.

The brewer has the cash, and there's a precedent, after AB InBev cut its dividend by half in October, earmarking the US$4 billion saved to pay down its loans.

The downside is that last year's move prompted an 11 per cent plunge in the share price, destroying US$18 billion in market value. It was intended to be a painful one-time exercise - not the first in a series. BLOOMBERG