East African Breweries Limited (EABL) is set to earn billions of shillings from the sale of its long-standing glass business to a South African company, in a transaction which analysts say is meant to help reduce the brewer’s debts.
The brewer said it will transfer all its shares in Central Glass Industries—its 28-year-old subsidiary from which it sources beer and spirits bottles— to Johannesburg-based Consol Glass.
Analysts say the move could be aimed at reducing an expensive outstanding loan of over $200 million (Sh18.4 billion) that the brewer received from its parent company Diageo in 2011.
“After a thorough strategic review, we have made the decision to exit the glass business in order to focus on our core business and un-lock additional value for our shareholders,” said Charles Ireland, the EABL managing director.
EABL took the Diageo loan to buy back a 20 per cent stake in Kenya Breweries Limited which it had earlier sold to its partner-turned-rival SABMiller.
The loan, on which the brewer said it pays an interest of over 12 per cent, could have seen it make the decision to sell it off.
“The most plausible explanation for the sale is that EABL looked at its assets and determined which ones they could sell to improve their debt position,” Eric Musau, an analyst with Standard Investment Bank (SIB) told the Business Daily.
“The proceeds of this sale will most likely go towards reducing the debt from Diageo,” he said.
Consol Glass is a privately-owned company (its major shareholder is an equity investment fund called Brait) and is currently the leading glass packaging manufacturer in Southern Africa.
The company has four factories in South Africa and recently bought a stake in a Nigerian glass manufacturer, Glassforce.
EABL said the deal, whose value has not been made public, could be complete in the next two months subject to regulatory and shareholder approval.
Consol has been supplying glass to EABL spirits subsidiary United Distillers Vintners (UDV) for several years.
“This transaction is a win-win for all parties including employees who will all be absorbed under the current terms and conditions of employment”, Consol’s chief executive officer Mike Arnold said in a statement.
Consol’s entry into Kenya will expose them to new customers including Pepsi and Coca-Cola —CGI’s present clientele— and new ones like Keroche Breweries which this week scaled up its output capacity 10 times.
EABL said that despite the buyout, CGI will remain its “primary” source of beer and spirits bottles.
The brewer in October shut down CGI for three months for refurbishment in an exercise that cost it approximately Sh1.3 billion.
“The refurbishment programme has been on course longer and is not related to the divestiture announcement,” said Mr Ireland, adding that they will not be divesting from other subsidiaries in the near future.