Bottles of Coca-Cola company displayed for sale at a supermarket in Hong Kong, China (Photographer: Lam Yik Fei/Bloomberg)

Cofco Unit Considers Sale of China Coca-Cola Bottling Assets

(Bloomberg) -- A unit of China’s Cofco Corp., the country’s biggest food company, is considering selling its Coca-Cola bottling assets, a move that would reshape its near duopoly on the mainland with Swire Pacific Ltd. since the U.S. beverage giant began to refranchise its bottling operations.

The unit, China Foods Ltd. is exploring a sale of its stakes in 10 Coca-Cola bottling companies in the country through a public tender, it said in a Hong Kong stock exchange filing Tuesday. The company will sell stakes varying from 7.15 percent to 100 percent through the China Beijing Equity Exchange. Half of the bottling facilities listed for sale are joint ventures with Swire Pacific. No value was given.

China is the world’s largest consumer market for food and beverage products, as an emerging middle-class gravitates toward foreign brands. The sales could potentially leave Swire a big portion of bottling facilities in southern China if the Hong Kong-based company was to bid for it. China Foods operates Coca-Cola bottling business in 15 provinces, with the majority of them located in the northern part of China.

“It would be reasonable for Swire to buy as bigger operations would bring economies of scale," said Castor Pang, head of research at Core Pacific-Yamaichi International Ltd. in Hong Kong.

Swire shares dropped as much as 1.6 percent Wednesday in Hong Kong trading, while China Foods declined 0.3 percent. Coca-Cola shares rose 0.3 percent to $43.85 in New York trading and have gained 2.1 percent this year. Swire and Atlanta-based Coca-Cola didn’t have further comment. China Foods representatives couldn’t be immediately reached for comment.

China Slowdown

Swire operates 11 plants in seven provinces including Guangdong and Fujian. In the first half of the year, attributable profit from its China beverage business was HK$119 million ($15.3 million), a 51 percent drop from a year ago due to the country’s economic slowdown. 

Coca-Cola Co. in February announced plans to significantly speed up refranchising of its bottling operations, as it seeks to reduce exposure to facilities that are more capital-intensive and low-margin. The world’s largest soft-drink company that month signed a letter of intent to also refranchise its China bottling operations to China Foods and Swire.

Chinese state-owned companies are required to make public their intention of a sale within 20 working days of the event, according to China Foods.

China is Coca-Cola’s third-largest market by volume, and a “significant long-term growth opportunity” for the drinks company, it said in a February statement. Coca-Cola is currently investing $4 billion in China for future growth, the company said.