May 30, 2019 / 3:23 AM / 4 months ago

Breakingviews - China booze giant raises empty glass to investors

A bottle of Moutai Liquor is seen on display in a showroom at Moutai Liquor Culture center in Renhuai, Guizhou province, China June 3, 2017. Picture taken June 3, 2017. REUTERS/Stringer ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. CHINA OUT.

HONG KONG (Reuters Breakingviews) - China’s liquor giant is raising an empty glass. Shareholders descended en masse to Kweichow Moutai’s annual general meeting. The $166 billion distiller addressed concerns about why its state-backed parent created a unit that can potentially funnel business away from the listed outfit. The candidness is welcome but not enough to avoid a governance hangover. 

Some 4,500 shareholders and agents attended this year’s gathering, about five times more than last year, according to company filings. Investors had plenty of awkward issues to raise, such as revelations earlier this month that officials would prosecute former Chairman Yuan Renguo following corruption allegations, as well as news that Moutai’s state-owned parent group had created a rival sales unit. 

Moutai has been cutting back on distributors and investors assumed that was because it wanted to sell more of the brew itself to try to raise its profitability. Now it seems the parent might be looking to partly muscle in on the action. The Shanghai Stock Exchange wrote a letter, demanding to know what the new unit was up to: Moutai shares have fallen more than 7% over the past month.

Chairman Li Baofang, to his credit, tackled the issue head-on at the shindig. According to local media reports, Li said that the company was created in part to address corruption issues and help rationalise the company’s distribution network. For good measure, Li pledged to not harm the interests of investors or compete with minority shareholders. 

Although the reasoning is woolly, it’s unusual to see a Chinese company, especially one that answers to the state, attempt to explain itself in such a manner. A recent blizzard of negative press coverage could have played a part in pressuring the firm to communicate and may also help limit the parent’s brazenness going forward. But for now, it’s all just words. Moutai has done little to remove the underlying threat – and shareholders may yet need a stiff drink. 


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