SHANGHAI/TIANJIN - China's instant noodle and beverage heavyweight Tingyi Holding Corp on Friday signed an agreement with soft drink giant Pepsi to create a strategic business alliance in China.

Based on the agreement, Tingyi Holding's affiliate company, Tingyi-Asahi Beverages (TAB) Holding, will be appointed as Pepsi's franchise bottler in China, according to an announcement posted by Tingyi Holding on its website.

Pepsi's wholly-owned subsidiary, Far East Bottlers (FEB), will hold a five-percent indirect interest in TAB, and the percentage may increase to 20 percent by 2015.

TAB's unaudited net asset value was about $1.1 billion by the end of the first half of this year, meaning FEB will acquire 55 million US dollars through the deal.

The agreement has yet to be approved by China's Ministry of Commerce and Tingyi Holding's board.

Industry observers said the tie-up marks a long-awaited foray of Tingyi into production and sale of soft drinks, after the company obtained a significant share in China's market for instant noodles and beverages.

According to the latest statistics from Tingyi, the company controlled 57 percent of the Chinese market for instant noodles, 54 percent for bottled tea, and 21 percent for juice as of June.

Pepsi's expertise and reputation in soft drink production can help Tingyi enrich its beverage categories and strengthen its grip of the market, said Chen Gongru, assistant manager of the public relations department of Tingyi.

Yet other experts doubt the benefits Tingyi can get from the acquiring Pepsi's bottling business, as the transfer did not include the production of the drink's key ingredients.

For Pepsi, its decision to team up with Tingyi came after its bottling business in China suffered great losses from rising raw material costs.

ChinaBottlers (Hong Kong) Ltd, the company that runs Pepsi's 24 bottling factories in China, reported a loss of 220 million US dollars in the past two years. Losses were also reported from Pepsi's Chinese shareholder companies.

Tingyi's purchase might therefore help Pepsi's lessen its burden while allow it to reverse its loss-making situation by capitalizing on Tingyi's extensive distribution network in China, said Xiang Jianjun, researcher of food industry at Zhongtou Consulting.