Beer maker EABL is set to earn Sh4.5 billion from the sale of its subsidiary Central Glass Industries (CGI) in a transaction that is expected to reduce the brewer’s debt.
EABL is transferring its 100 per cent stake in the glass-making firm to Consol Glass, a South African company.
In disclosures made in a shareholders’ circular, EABL said it will use the cash to partly repay a Sh19 billion loan ($200 million) that it borrowed from Diageo, its parent company.
“It has been agreed between the company (EABL) and Consol that the consideration payable in respect of the sale is Sh4.49 billion,” said the brewer in the circular sent to shareholders.
The transaction will see Consol supply EABL with spirits and beer bottles for at least five years.
The brewer has agreed to offer Consol management services for a maximum of one year at a fee.
“The purchase price payable by Consol is reflective of market value and constitutes a fair value for CGI. The board has considered and believes that the sale is in the best interests of the company and its shareholders,” read the circular.
EABL did not disclose the sale price when it made the negotiations public on April 1, only indicating that the transaction could be concluded by July subject to shareholder and regulatory approvals.
The beer maker took a loan from Diageo in 2011 to finance the buyback of a 20 per cent stake in Kenya Breweries Limited which it had earlier sold to its partner-turned-rival SABMiller.
The brewer has in the past indicated that it pays an interest rate of over 12 per cent on the loan, hence the urgency to clear it.
“The purchase price will be used by the company to reduce existing debt and in investing in its core beverage business,” EABL told its shareholders, who are now expected to okay the sale during an extra-ordinary meeting on May 27.
Consol is a privately-owned company with a manufacturing presence in South Africa and Nigeria.
It is the leading glass packaging manufacturer in southern Africa with clients like SABMiller, Distell, Heineken and Namibia Breweries.
Consol currently supplies glass to EABL’s spirits subsidiary United Distillers Vintners (UDV).
CGI is EABL’s main supplier of glass bottles.
The company also sells excess products to companies like Coca-Cola and others operating in Uganda, Tanzania, Rwanda, Seychelles and Zimbabwe.
The glass plant, which was last October refurbished at a cost of Sh1.3 billion, has a capacity to produce 130 to 140 tonnes of glass per day and casts them into 73 different shapes.
CGI’s financial statements— also included in the disclosure documents —indicate that its revenue in 2014 decreased 9.7 per cent to Sh1.89 billion compared to the previous year’s Sh2.06 billion.
The glass company, which has 90 employees, posted a net profit of Sh134.8 million last year, a 60.8 per cent drop from Sh343.5 million posted the previous year.
“The company believes that the sale will allow for increased investment in its core beverage business, thereby ensuring that EABL remains on a strong and profitable growth trajectory,” the brewer said.
“The directors unanimously recommend that shareholders vote in favour of the resolution.”
Consol will also pay EABL a monthly fee of Sh100 million for additional services to be provided for 12 months.