Kwal gets lifeline as Distell withdraws threat to quit partnership

State-owned alcoholic drinks maker Kenya Wine Agencies Ltd (Kwal) has received a lifeline after its South African partner withdrew a notice to terminate a 14-year- old contract for the distribution of flagship brands, which account for up to 60 per cent of its revenues.

The withdrawal means that Kwal can continue to distribute flagship brands like Viceroy and Amarula owned by Distell, offering relief to shareholders like Centum that had expressed doubts over its future profitability.

South Africa’s Distell wanted to sever links with the Kenyan firm on grounds of continued delay of a privatisation process it claimed was frustrating its strategic plans, prompting Kwal to move to court.

Kwal, which is owned 72.6 per cent by the government, together with Distell told the High Court that they had settled the dispute out of court, but refused to make public particulars of the settlement.

“The terms of the settlement are confidential,” said Vernon de Vries, corporate affairs director of Distell, in an e-mail response to the Business Daily.

“One of the outcomes is that, yes, Kwal will continue to distribute Distell’s products in the Kenyan market.” The South African company threw Kwal into a crisis with the issuance of a notice in June of intention to terminate the distribution contract it signed with the Kenyan firm in 1998.

Distell said that its patience had been stretched to the limit by the government’s continued delay of Kwal’s privatisation which was to give it an ownership stake in the firm.

The Treasury has maintained that the absence of a board at the Privatisation Commission makes it impossible to start the process of selling part of the government’s 73.57 per cent stake in the alcoholic drinks firm, pleading with the South Africans for patience.

Last week the Treasury gazetted names of people it wants appointed to serve on the commission’s board, paving the way for planned sale of several State firms including Kwal, the National Bank of Kenya, and Consolidated Bank.

Kwal is the sole marketer of up to 80 of Distell’s brands in Kenya, which accounts for 60 per cent of its profits. Analysts said that the exit of the South African firm could have left the Kenyan company a near shell that would be almost impossible to find a buyer for.

Distell, through its local subsidiary Distell Winemasters, had expressed intention to take over distribution of alcoholic beverage brands it has been selling in Kenya through Kwal.

Listed investment firm Centum, which has a 26.43 per cent stake in Kwal, had warned its shareholders that cancellation of the Distell contract would greatly impact on Kwal’s profitability.

The end of the business partnership was expected to intensify the battle between SABMiller and East Africa Breweries Limited (EABL).

Diageo-led EABL and SABMiller, through its local subsidiary Crown Beverages, have been locked in a battle for control of the regional beer market.

Standard Investment Bank analysts said that the battle was to shift to the spirits market as Distell, which is 29 per cent owned by SABMiller, was to set up its own operations after severing links with Kwal.