Tsingtao Brewery buys U.S. stakes in 2 China breweries

Tsingtao Brewery buys U.S. stakes in 2 China breweries

BEIJING (Reuters): Tsingtao Brewery Co Ltd, China's largest beer maker, agreed on Friday to buy two U.S.-controlled breweries in Beijing, marking a further retreat from the glutted market by foreign companies.

Tsingtao will pay Asian Strategic Investments Corp (ASIMCO) US$22.5 million in cash for its 63 percent stake in Beijing Five Star Beer Co and its 54 percent stake in Beijing Three Ring Asia Pacific Beer Co, Tsingtao officials said.

That represents a hefty loss for ASIMCO, which paid more than 500 million yuan ($60.39 million) for Five Star in 1995.

"I'm not thrilled with the way things have gone," said Tim Clissold, president of ASIMCO, whose beer investments were underwritten partly by U.S. number two beer conglomerate Miller Brewing Co, and the pension fund of General Electric.

Cutthroat competition, rampant protectionism and a rising beer lake have already forced Denmark's Carlsberg and Foster's of Australia to scale back in the once-vaunted China market.

Beer is now cheaper than bottled water and local breweries exert heavy pressure on distributors to keep rival brands off store shelves.

Few, if any, of the roughly 60 foreign breweries in China are profitable and most of the 500 or so domestic breweries are losing money.

Tsingtao -- probably China's best known brand overseas -- is expanding its hold on the fragmented market.

Foster's sold two joint venture breweries in China in 1999 after heavy losses.

Carlsberg agreed this month to sell 75 percent of its Shanghai joint venture brewery, also to Tsingtao, for 153.75 million yuan ($18.56 million).

Clissold cited chaotic distribution and management woes at the Five Star brewery as reasons for the sale and said ASIMCO wanted to focus its attention exclusively on its automobile parts business.

"In order to be a consolidator in the beer market you must have A) economies of scale, and B) capital," he said. "It makes more sense to continue investing in the auto sector."

ASIMCO has a thriving business producing auto components in China, with roughly $300 million in 18 joint ventures.

Another ASIMCO executive said Five Star's financial problems stemmed partly from a decision by the Chinese joint venture partner to bow to a government edict requiring brewers to buy expensive shatter-proof bottles from specified suppliers.

Competitors ignored the new requirement, the executive said. He added that Three Ring was performing well.