Tingyi strikes deal with Asahi, Itochu in bid to lead China's beverage market

Tingyi (Cayman Islands) Holding Corp (康師傅控股) said yesterday it has agreed to sell half of its soft drink venture in China to two Japanese companies, aiming to strengthen its leading status in China's beverage market.

"China's beverage market has seen a rapid increase of 30 percent a year since 1990 and we estimate the market will keep double-digit growth annually over the next 10 years," said Frank Lin (林清棠), Tingyi's chief financial officer, in a video-conference with executives of Japan's Asahi Breweries Ltd and Itochu Corp.

Under the agreement, Tingyi, the biggest instant-noodle maker in China, will first establish a beverage holding company registered in the Cayman Islands. The holding company will consist of Tingyi's existing 13 beverage operations in China.

Then Tingyi will sell a 50-percent stake in the holding company, worth US$425 million, to Asahi and Itochu to set up a new beverage venture, Tingyi-Asahi-Itochu Beverages (康師傅飲品控股), exclusively for Chinese operations.

Encouraged by the formation of its partnership with Asahi and Itochu, Tingyi saw its market value increase about US$300 million yesterday.

Shares of the company, which were listed in Hong Kong beginning in 1996, rose to HK$2.225 (US$0.29) during the session, making its market value increase to US$1.6 billion. The closing price was HK$2.325 yesterday.

The new venture will make tea, fruit juice, coffee and health drinks for the soft drink market in China, worth some 117 billion yuan (US$14.1 billion) in 2002.

Lin said that only the top three players in China's market can make profits. With a sales and distribution network covering more than 400 major cities and 700 towns in China, Master Kong bottled tea products are first in the market with a 45 percent market share, while its juice products are in second place with a market share of 20 percent.

Tingyi's business focuses on three sectors -- food manufacturing and distribution, retailing, and chain restaurants -- said Bruce Lu (陸億華), finance and accounting director at Wei Chuan Corp (味全), Tingyi's local food company and distributor.

"Wei Chuan is planning to expand its milk powder business in China, which is worth about 24.3 billion yuan annually," he said.

China-based Master Kong and Taiwan-based Wei Chuan will handle food manufacturing and distribution, while the retailing will be developed under the brands of Loogoo hypermarkets (樂購) and Family Mart convenience stores (全家) in China and Sung-ching (松青) and Marukyu (丸久) supermarkets in Taiwan.

"The chain restaurant business in China will be developed under the brands of Dicos fried chicken restaurants, with more than 300 outlets nationwide, Japanese-style noodles and barbecue restaurants by collaboration with Itochu," Lu added.