Tobacco Asia

12 tobaccoasia FRONT PAGE NEWS 卷首新闻 CHINA Imperial's Foothold in China The world's fourth-biggest tobacco company, Imperial Brands, gets a foothold in the largest cigarette market through a joint venture with state-owned China National Tobacco (CNTC). Hong Kong-based Global Horizon Ventures Ltd. (GHVL) will link Imperial with CNTC's subsidiary, Yunnan Tobacco, which controls over one-fifth of the Chinese market. "Further tobacco and next-generation product launches, as well as potential M&A opportunities, will also be evalu- ated by GHVL in due course," Imperial Brands said. The two firms said the venture will grow Imperial's West and Davidoff brands in China, and Yunnan's Jade and Horizon brands globally. US BAT Acqulres Reynolds American British American Tobacco (BAT) has agreed to acquire Reynolds American in a US$49.4bn deal that will create the world's largest listed tobacco company by sales. The announcement of this major acquisition, which will bring BAT back to the US market, was made in mid- January, three months after BAT first made an unsolicited US$47bn bid to acquire the 57.8% stake in Reynolds it did not already own. BAT had previ- ously folded its US subsidiary, Brown & Williamson, into Reynolds in exchange for a large minority stake. BAT originally proposed paying US$20bn in cash and the remainder in its stock. At the time, while Reynolds was open to a deal, it wanted BAT to increase its cash-and-stock offer. BAT later sweetened the terms of the offer by offering US$24.4bn in cash and the rest in shares, and won over Reynolds's board, valuing the US rival at more than US$85bn. Reynolds is the second-largest tobacco company in the US, behind Altria. BOSNIA BAT Acqulres Bosnian FDS Tobacco Business British American Tobacco (BAT) has reached a principle agreement with Bosnian holding firm Fabrika Duhana Sarajevo (FDS) to acquire its tobacco assets. Austria's CID Adriatic Investments, using funding provided by BAT had bought a 78.7% stake in FDS for the total of 84.3 million Bosnian marka ($46.3 million). It first bought a 39.9% stake from the regional government in September and then in December an additional 38.8% stake from small shareholders and funds. The transaction is expected to be completed in the first half of this year, following FDS shareholder approval vote and the relevant regulatory approvals. "BAT will acquire all FDS tobacco brands and retail business [Tobacco Press shops] from FDS," said a statement released by the two companies. "BAT will also enter into a contract manufacture agreement with FDS for the continued production of the acquired brands by FDS in Sarajevo." FDS has banking and real estate operations as well as tobacco interests. CID will continue to develop the non-tobacco parts of FDS independently. INDIA Proposed Ban Threatens PMI A proposed ban on foreign tobacco investment by the Indian government is threatening Philip Morris's (PMI) place in the country's tobacco industry. According to Reuters, PMI letters dated May and October 2016 to the trade minister and an influential government think-tank said that "the 'discriminatory' and 'protectionist' proposals would represent a blow to its plans to launch new products and make further investments in India. Martin G. King, Philip Morris' Asia president, wrote, "The proposed ban will impact our future investments in India and also force a review of our overall operations, including tobacco crop purchases," in PMI's letter on Oct. 13 to NITI Aayog, India's most influential government think-tank. India has banned foreign investment in cigarette manufacturing since 2010, but it still allowed tobacco companies to invest through technology collaboration and licensing agreements, or by forming a trading company. The Indian govern- ment has been considering over the past year whether to stop these. Before the 2010 ban, PMI formed a new wholesale trading company with Godfrey Phillips India Ltd. and an investment firm. Godfrey manufactures Marlboro while Philip Morris' trading firm helps promote them. This part of its operations would not necessarily be impacted by the foreign investment changes being considered, as such changes usually do not apply to previous arrangements. However, if the new rules were implemented, PMI's future investment plans in India, which include the possible launch of its iQOS heat-not-burn product in this market, would be in jeopardy, as any form of new investment or collaboration would be outlawed. Excise Tax Hiked India's Finance Minister Arun Jaitley announced on February 1, a hike in excise duty on cigars, cheroots, pan masala, cigarettes, and other related tobacco products. The excise duty on cigars and cheroots have been hiked to 12.5% or Rs4,006 per thousand, whichever is higher, from 12.5% or Rs3,755 earlier. On pan masala products the excise duty has been increased to 9% from 6%, while for other unmanufactured tobacco raised to 8.3% from 4.2% earlier. For pan masala products containing tobacco or guthkha, the hike on excise duty will go from 10% to 12%. Duty on non-filter cigarettes of length not exceeding 65mm has been raised to Rs311 per thousand from Rs215. NICARAGUA Industry Thrives Due to US Demand Nicaragua's tobacco industry is seeing a huge boost mainly thanks to US demand. The country's reputation as a tobacco producer is growing, boasting a sector that is a big exporter and employer. Esteli, a region in the north of the country, has the dark soil and tropical climate perfect for growing tobacco. Juan Ignacio Martinez, the head of the Nicaraguan Chamber of Tobacco Growers, said that in Nicaragua, ""the soil is of volcanic origin and well suited for any sort of crop," he says, "especially tobacco leaf, which grows big here, with a lot of flavor and a great aroma that smokers like."

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