CHINA – Hong Kong-based conglomerate Swire Pacific Ltd has agreed to the conditional sale of its entire soft drinks business in the US for US$3.9 billion to its UK-headquartered parent company.

The sale of Swire Coca-Cola, USA to JS&S (Beverages), a unit of John Swire & Sons Limited, Swire Pacific’s parent firm, is conditional on the approval of Swire Pacific’s independent shareholders, according to a statement issued to the Hong Kong stock exchange.

The transaction will allow Swire Pacific to pay a tasty dividend, cut net debt, and focus on the Greater China and Southeast Asia region.

In case the independent shareholders approve the sale, about half of the gain, or HK$11.7 billion, would be distributed to shareholders via a dividend of HK$8.12 per A share and HK$1.624 per B share.

This “would be larger than the sum of dividends paid over the last three financial years,” according to the filing.

“The significant net proceeds from the transaction will serve to materially reduce the company’s net debt, further strengthen its balance sheet and enhance its financial flexibility,” according to the filing.

Net debt at Swire is expected to fall by a third, to HK$38 billion ($4.9 billion) after the sale. The expanded cash pile will be able to cover 7.3 times the company’s borrowing costs, compared to 6 times at the end of last year – a useful buffer amid rising interest rates.

As part of the transaction, the Hong Kong-based group has a 13-year contract to keep running Swire Coca-Cola USA, which will allow the conglomerate to maintain its lucrative manufacturing, marketing, and distribution deals with the global drinks behemoth.

In January, Coca-Cola China sold its non-aerated beverages business in 13 cities to Cofco Group company China Foods and Swire Pacific, in a bid to boost production management efficiency.

Swire Coca-Cola will own Coca-Cola Bottlers Manufacturing Holdings in the cities of Nanning, Hangzhou, Foshan, Wuhan, Dongguan, and Suzhou. Cofco Coca-Cola will own Coca-Cola Bottlers in Yingkou, Jinan, Changsha, Shijiazhuang, and Chengdu.

In July last year, Swire Pacific bought Coca-Cola’s bottling operations in Vietnam and Cambodia for US$1.015 billion in cash.

In Asia, Swire Coca-Cola also manufactures and sells Coca-Cola products in 11 provinces and the Shanghai municipality in mainland China. It also serves Hong Kong and Taiwan.

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