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Australia, Melbourne: Lion Nathan Limited, Australia's second-largest brewer, might decide to sell its operations in China after suffering nine years of losses there, analysts said on May 18, according to Reuters. While the China business, valued in its books at more than A$100 million ($69 million), has yet to break even, analysts speculated Lion Nathan could sell it for a profit, given the bullish prices investors were paying for assets in the red-hot Chinese economy.

"Using the latest transactions in the Chinese region by large brewers, you can see there's been some hefty values paid for these assets," UBS analyst David Roberton said.

Speculation on Lion Nathan's future in China bubbled up after Chief Executive Gordon Cairns predicted the six major brewers, including Lion Nathan, which together control about 51 percent of the market in China's Yangtze River delta would likely merge their operations or form alliances.

"Clearly that relatively overcrowded market can't continue," Cairns told reporters after the group reported its first-half results on Monday.

Several analysts interpreted his remarks as signalling a potential sale of Lion Nathan's business, however spokesman Warwick Bryan said the company has no intention at this stage of selling out of China.

"It's something that they have to address in the next six months. They really should align with a very large brewer or sell their assets -- but more likely they'll sell," said Craig Woolford, an analyst at Commonwealth Securities.

Lion Nathan's shares, 46-percent-owned by Japan's Kirin Brewery Co, ended down 0.3 percent at A$6.20 in a firmer overall market. Lion Nathan has three plants in Wuxi, Suzhou and Changzhou. Sales in the six months ended March 31 rose 54 percent to 49.6 million litres with revenue climbing 60 percent to 139.6 million ($16.9 million). Its losses however grew to 42.9 million in the half year from 34.3 million yuan a year earlier.

Lion Nathan's big rivals in the Yangtze delta are the world's top two brewers, Anheuser-Busch and Interbrew, as China's sixth-largest brewer, Chongqing, and Japan's Asahi Breweries and Suntory Ltd.

"I would have said those six, plus the guys who are smaller and on the fringes who need to get involved, will probably end up consolidating into one or two," CEO Cairns said. "On a go-forward basis, our strong desire is to participate in consolidation, ideally with a joint venture with someone else."

Anheuser-Busch is already battling SABMiller Plc to take over China's fourth-largest beer maker, Harbin Brewery Group.

UBS's Roberton said as long as the bull market for assets in China continued there could be an opportunity for Lion Nathan to merge with a rival or sell out entirely. He valued the brewer's Chinese assets at A$70 million-A$80 million while Lion Nathan is carrying them on its books at more than A$100 million. "With the spate of consolidation and corporate interest, we believe Lion Nathan would be able to sell its China operation at a profit," ABN Amro analyst David Cooke said in a research report.


21 May, 2004