Trouble Brewing As AB Inbev Gets Its IPO In Asia By Investing.com

By Geoffrey Smith

Investing.com – If you think the IPO market is a good indicator of the overall health of the market, you're probably a bit worried this morning.

Anheuser Busch Inbev (BR :), the world's largest brewer, was reported to be the biggest IPO of the year to date, the $ 8 billion partial split of its Asian business, citing "adverse market conditions".

This is the second big deal in a few days to be withdrawn, after the insurance giant Swiss Re (SIX 🙂 has removed the list of its reinsurance business in the United Kingdom, which is expected to generate more than $ 3.5 billion. Like the brewing multinational, Swiss Re also criticized "increased caution and weak underlying demand".

Both companies have little in common, be it sectoral, cyclical or geographic. One is a mature UK-based business – arguably declining – that revolves around interest rates and longevity, and the other is a direct barrier to the growing taste of Chinese middle class for beer. So seeing them use almost the same language to make their decisions should raise an eyebrow or two.

AB Inbev is expected to face a more in-depth review in the near term, as this failure is another negative market judgment on the merger, decided in 2015, of AB InBev and SAB Miller. This agreement, which imposed on the merged company one of the heaviest debts in the world, has not allowed to generate the promised profits: the stock has fallen by almost 30% compared to the date of its agreement, a period during which rivals such as Carlsberg (CSE:), Constellation Brands (NYSE 🙂 and Heineken (AS 🙂 have increased between a third and a half.

AB Inbev lost 1.6% early Monday in Europe, a morning when almost all European and Asian markets were up, taking advantage of Chinese data better than expected on and. The rate was stable at 386.12, while that of Germany was up 0.2% and almost unchanged.

It is not uncommon for buyers and sellers to vary their opinion of the value of a business, of course, but it is always more difficult when the seller's idea of ​​the right price is colored by the price of the business. a previous transaction that has retrospectively, unrealistic.

That said, AB Inbev's management could still be justified in concluding the deal. The company's profitability depends largely on the exchange rate, as most of its $ 110 billion debt is denominated in dollars and most of its sales come from emerging markets. The US Federal Reserve is now in a state of relaxation and emerging-market currencies are strengthening (South Africa, one of the group's largest emerging markets, saw its test peak at five months thanks to Chinese data).

While this would avenge AB Inbev's leadership on the more precise timing issue, it still leaves them a mountain to meet for their long-term promises.