The mainland’s No 1 beer brewer by sales volume, China Resources Snow Breweries, said yesterday [Feb. 5] it would buy out the loss-making Kingway Brewery in a 5.38 billion yuan (HK$6.69 billion or US$864 million) deal as part of its expansion plan. Kingway will reinvent itself as a developer after selling its distribution network and its seven breweries, by redeveloping its Plant 1 site in Buxin, Shenzhen, the only land holding it is not selling as part of the deal, into a retail and commercial complex.

Chen Lang, the chairman of China Resources Enterprise, which owns 51% of China Resources Snow Breweries (SABMiller joint-venture with CRE), said: “We are confident of turning around Kingway’s business.” Kingway had issued a profit warning on January 30, saying its losses for last year would increase. It had reported a loss of HK$101.6 million [US$13.1 million] for the first six months of last year, blaming rising raw material costs and intense competition as the reasons. The sale will help Kingway make an estimated gain of HK$3.49 billion [US$450 million].

Chen Lang said Kingway’s production capacity and brand name will help CRE gain more market share in Guangdong. In 2012, China Resources Snow Breweries produced 10.8 million tons of beer, accounting for about 22 percent of the market in the province. Kingway, which held about a 2% market share in Guangdong. 

Huang Xiaofeng, the chairman of Kingway, said: “We will terminate our beer business and concentrate on the fast-growing property market.” Kingway proposes making a special cash dividend of HK$1.71 billion [US$220 million], or HK$1 per share. It will use 2.42 billion yuan [US$390 million] to finance the redevelopment projects and set aside the remaining 1.19 billion yuan [US$190 million] to cover land premium and other expenses such as market research, demolition and cleaning up.

To reflect the change in its corporate strategy and the new focus on property development and investment, the firm proposes to change its name to Guangdong Land. Kingway’s Plant 1 in Buxin will be developed into a center for jewelry design, production, exhibition and sale. The demand for office space has already been rising in anticipation of the plan to transform Buxin.

The proposed mixed-use project, with a total area of 87,075 square meters, will be developed in three phases. The first phase will be completed in mid-2016 and the last in 2019. Other than Shenzhen, Kingway has been weighing properties in Beijing, Tianjin and Xian for projects.

Kingway has an annual production capacity of 1.7 million tons (17.2 million hectoliters), with beer sales of about 934,000 tons and revenue of more than HK$1.7 billion [US$220 million]. The seven breweries it is selling are in Chengdu, Foshan, Dongguan, Shantou, Tianjin, Xian and Shenzhen.

In the first six months of last year, China Resources’ beer division reported a net profit of HK$375 million [US$48.4 million] on a turnover of HK$14.63 billion [US$1.89 billion].

Sources: South China Morning Post Feb 2013 and The Standard Feb 2013

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