Why AB-InBev called off its Asia IPO

Belgium | The embarrassment of toing and froing with its Asia IPO will soon be forgotten. But the implications are clear for all to see: financial markets no longer play to the tune of AB-InBev.

Although AB-InBev cited unfavourable market conditions as the reason for ditching its USD 9.8 billion listing, it had actually asked for too much. Hence investors’ lukewarm response to the share offering, which in turn forced AB-InBev to call the whole thing off.

AB-InBev’s own valuation for its Asian units was between USD 54.2 billion and USD 63.7 billion, whereas analysts not involved in the IPO, like Bernstein Research, have estimated the business to be worth between USD 45 billion and USD 55 billion only.

Of course, AB-InBev sought to get as much out of the IPO as they could. And you cannot blame them for it. But AB-InBev’s problem with the IPO, really, stem from its earlier moves to buy up the competition.

As points out the Motley Fool website, “the brewer’s 2016 acquisition of SABMiller boosted its debt load to over USD 100 billion, a figure it has struggled to knock down ever since. In 2018, it slashed its dividend in half to save USD 4 billion that it could apply to its debt; likewise, a chunk of its now-cancelled IPO was to go to debt service.”

Under optimal conditions, AB-InBev would have a debt load of around 2 times its profits (EBITDA), but as things stand it will not get its present debt load below 4 times EBITDA until 2020. It stood at 4.6 times EBITDA at the end of 2018.

This all creates additional risks for the brewer. According to the Motley Fool, “bond credit rating service Moody’s cut AB-InBev’s rating to just above junk status last December. If its net debt isn’t reduced below 4.5 times EBITDA within two years, Moody’s will consider dumping AB-InBev’s credit into junk territory, which would raise its costs and possibly create problems with other covenants it has.” 

Hence AB-InBev was forced to conduct a fire sale of CUB. Although the sale of CUB will flush in slightly more in terms of proceeds than the IPO, the IPO would have allowed AB-InBev to keep the majority of shares in its Asian units. With CUB gone for good, AB-InBev has relinquished a veritable profit spinner.