Subway commuters in Beijing walk past a vending machine containing PepsiCo beverages. According to reports, the company plans to buy back stake holdings from local partners in an effort to gain full control and profits of its business in the Chinese market. [Photo / Bloomberg]

Global drinks giant looks to increase profit by buying back local stakes

BEIJING - PepsiCo Inc, one of the world's largest food and beverage companies, is trying to claim a bigger slice of profits and direct control of its business in the Chinese market.

To achieve this aim it is seeking to buy back stake holdings from local business partners.

Beijing Yiqing Holding Ltd plans to sell the 15 percent stake it holds in Beijing Pepsi Cola Beverage Co for 730 million yuan ($111 million), the 21st Century Herald reported on Wednesday, citing a statement filed with the China Beijing Equity Exchange Group (CBEX Group).

PepsiCo (China) Investment Co Ltd is believed to be the buyer of the offered stake.

Beijing Pepsi Cola Beverage, established in 1988 with a registered capital of $14.12 million, is a 50-50 joint venture between Pepsi China and Beijing Yiqing.

"The equity transfer is a normal business of the Chinese shareholder and the transaction is currently in the process of public tender," said Liu Jun, a spokesman for PepsiCo China, who declined to comment on details.

The 21st Century Herald cited Beijing Yiqing as saying that the State-owned company will pull out of PepsiCo completely after transferring the stake.

"PepsiCo China will probably acquire the equity on sale, as the global giant will definitely gain more with full control of its business in the Chinese market, which is growing rapidly," said Huang Wei, a food and beverage analyst with China Jianyin Investment Securities.

According to Huang, China's carbonated drinks market is still a big attraction for global companies. "While the carbonated drinks market in Western countries is suffering a continuous slowdown, the Chinese market continues to grow at 20 percent annually," he said.

In the first 10 months of last year, Beijing Pepsi Cola Beverage generated revenue of 800 million yuan and received a net profit of 1 million yuan, the People's Daily reported recently.

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In December last year, PepsiCo (China) paid 48 million yuan to acquire a 5 percent stake in Shenzhen PepsiCo, a joint venture between PepsiCo and Shenzhen Shenbao Industrial.

Shenzhen PepsiCo registered sales of 1.54 billion yuan in 2009 and saw net profit of 23.85 million yuan. Shenbao Industrial still owns a 25 percent stake in Shenzhen PepsiCo after the transfer.

"Despite the equity transfer of the Chinese partner, we will continue to invest in the Chinese market," Liu said.

In May 2010, PepsiCo announced plans to invest an additional $2.5 billion in China during the next three years, in addition to the $1 billion investment the company announced in 2008.

PepsiCo China said the new investment will be allocated to projects including building new manufacturing facilities, scaling up the company's research and development operations, expanding agricultural development and brand-building initiatives.

PepsiCo plans to open 10 to 12 new plants in China to manufacture soft drinks, non-carbonated beverages and snacks. The company currently operates 27 beverage and food plants in the country, most of which are joint ventures.

The US company lost a lawsuit this month against its former joint-venture partner, Chongqing-headquartered Tianfu Cola Group Corp, after claiming it had stolen the recipe for the beverage.

Tianfu Cola established a joint venture with PepsiCo in 1994, following which the former's production ratio in the new enterprise was reduced from 74 percent to 0.5 percent.