By David Winning

SYDNEY--Trade frictions between Australia and China have contributed to one global winemaker putting a cork in plans to spin off a luxury wine brand that is highly prized by collectors and can sell for thousands of dollars a bottle.

Treasury Wine Estates Ltd. on Thursday said it had frozen plans to list its Penfolds business separately, a day after the company said it had become aware that a Chinese industry association has asked Beijing to impose retrospective tariffs on Australian wine.

The written request by the China Alcoholic Drinks Association to the Chinese Ministry of Commerce, or Mofcom, would affect imports of Australian wine in containers of up to two liters if it is accepted, Treasury Wine said. The CADA request for tariffs potentially broadens Mofcom's investigation, launched in August, into whether Australia is dumping cheap wine into the Chinese market.

"We have decided to formally pause work on a demerger to focus on key priorities including trading through Covid, the U.S. business restructuring and most specifically the Mofcom investigation in China," Chief Executive Tim Ford said.

The decision, along with the threat of more tariffs, sparked an 8.2% fall in Treasury Wine's share price to near five-year lows on Thursday. Treasury Wine is one of the world's largest listed winemakers and competes with Constellation Brands Inc. and E&J Gallo Winery of the U.S.

In April, Citi had estimated Penfolds could be worth US$4.7 billion as a separate company. Treasury Wine had hoped to complete the spinoff in 2021.

Australia is vulnerable in any dispute with China as Beijing is its biggest two-way trade partner by far. Many of Australia's top exports from coal to beef have this year faced restrictions in China, rattling producers.

Diplomatic relations between China and Australia have worsened since Canberra began seeking support from European leaders in mid-April for an investigation into any missteps early in the coronavirus crisis that contributed to the pandemic.

Those moves angered Chinese officials, who saw them as politically motivated. China's ambassador to the country, Cheng Jingye, earlier this year retaliated by threatening a consumer boycott of Australian beef and wine.

For winemakers, the threats from China are serious. Mainland China accounted for 39% of the total value of wine exports in the 12 months through September, according to Wine Australia, an industry group. Australia is the world's fifth-largest exporter of wine and exports around 60% of its production.

"It's likely to cause any Chinese importers to halt further orders of Australian wines until there is clarity," Citi said of the CADA request for retrospective tariffs.

CADA and Mofcom didn't immediately respond to requests for comment.

On Wednesday, Treasury Wine said it was also aware of recent speculation that China could impose an embargo on imports of some Australian products, including wine, but it hadn't been notified by Chinese authorities about such a move.

Treasury Wine, which counts Beringer and Chateau St. Jean among its brands, has bet big on China in recent years as an increasingly affluent middle class in the country drinks more wine and at higher prices per bottle. In Treasury Wine's annual report published in August, China was projected to be its fastest-growing market for wine consumption in the five years through 2023, more than offsetting declines in some traditional markets, including the U.S.

"We respect the process initiated by the Chinese government and we will continue to fully cooperate as these investigations continue," Chairman Paul Rayner told shareholders attending Treasury Wine's annual meeting on Thursday. "Treasury Wine has been dedicated to the China market since we first introduced Penfolds in 1995."

Penfolds was founded in 1844 by Christopher Rawson Penfold, a young English doctor, who migrated to Australia and purchased an estate in South Australia state to grow wines made initially from Grenache. Its most famous brand--Penfolds Grange--was created in the early 1950s by a young winemaker known as Max Schubert who experimented with Shiraz grapes and techniques picked up on a trip to Bordeaux. Since then, the Penfolds brand has garnered a huge following among drinkers and collectors alike.

Mike Cherney contributed to this article.

Write to David Winning at david.winning@wsj.com

(END) Dow Jones Newswires

11-05-20 0339ET