Keroche rules out stake sale in Sh22.7bn clash with KRA

Keroche Breweries chief executive Tabitha Karanja addresses the media on March 9, 2022. PHOTO | DIANA NGILA | NMG

What you need to know:

  • The finances of Keroche, a private company, are not publicly available but it is expected to struggle to raise the billions of shillings if the KRA has its way.
  • The taxman imposed a freeze barring 36 banks from dealing with the 25-year-old family-owned brewer famous for its Summit Lager and Summit Malt beers.
  • One of Keroche’s founders, Tabitha Karanja, on Wednesday, ruled out a stake sale, accusing the KRA of frustrating a staggered clearance of the tax bill.

Naivasha-based Keroche Breweries’ owners have ruled out the possibility of selling the firm facing an uncertain future after the Kenya Revenue Authority (KRA) closed its factory over a Sh22.79 billion tax bill.

The finances of Keroche, a private company, are not publicly available but it is expected to struggle to raise the billions of shillings if the KRA has its way, placing the brewer’s assets and those of its shareholders at risk.

The taxman also imposed a freeze barring 36 banks from dealing with the 25-year-old family-owned brewer famous for its Summit Lager and Summit Malt beers.

Its aggressive stance against the brewer has fuelled speculation of a potential sale to raise the billions needed to clear the unpaid taxes.

One of Keroche’s founders, Tabitha Karanja, on Wednesday, ruled out a stake sale, accusing the KRA of frustrating a staggered clearance of the tax bill.

“Going to sell Keroche I don’t see it happening,” said Mrs Karanja at a media briefing.

“I don’t think it can be the best option. Everybody would want Keroche to survive so that we show that we can also do it.”

Keroche entered brewing in 2008 and had ambitions to grow its market share to 20 percent in an expansion partly funded by banks like Absa Kenya.

It had ambitions to list its shares on the Nairobi bourse through a public offering.

Diageo-controlled East African Breweries Limited (EABL) #ticker:EABL , with brands like Tusker beer and Johnnie Walker whisky, has a commanding lead in the market. But it has seen competition ratchet up in recent years from small local brewers and imports like Heineken beer.

Analysts reckon Keroche should consider a stake and assets sale to ride out the financial crisis.

But Keroche has instead requested the KRA to grant it a grace period of 18 months to clear taxes in arrears while paying the current ones as they fall due.

It has also appealed to the KRA to allow the reopening of the plant-based in Naivasha to prevent huge losses and lift the agency notices with the 36 banks, which demanded lenders wire cash from the Keroche accounts to the taxman’s bankers.

Keroche said it has over two million litres of beer worth about Sh512 million in its storage with a fixed maintenance cost of Sh30 million per month.

“… If nothing is done in the next seven days, we will be forced to drain down all the beer and lay down over 250 direct employees and thousands within our nationwide distribution network,” the company said.

The brewer said it was unable to honour an earlier payment plan due to frequent disruptions from the taxman.

The statement was a response to the KRA’s blow-by-blow account of the 16-year-long battle with Keroche, including details of unpaid corporate tax, excise duty, VAT and penalties of Sh3.02 billion.

The KRA accuses Keroche of defaulting on agreed plans to clear the tax arrears, including a deal to pay half a billion shillings monthly from December to clear part of tax arrears amounting to Sh4.49 billion.

The Sh4.49 billion was part of a Sh7.54 billion tax demand, which included penalties of Sh3 billion. Keroche appealed to the Treasury to write off Sh3.99 billion on agreement it would pay the Sh4.49 billion. The Treasury is yet to respond to the request.

The KRA crackdown is a blow to Keroche that hoped to tap a spring of consumer patriotism among Kenya’s growing middle class to munch into the market share of the mighty EABL.

The taxman has hinged its aggressive action on the Tax Procedures Act, which empowers it to seek taxes directly from third parties like banks, employers and suppliers as well as seize and auction property to recover unpaid tax.

Cars, land, homes, office blocks, companies and workplace equipment are on the KRA’s radar at a time when it has stepped up the war against those it perceives as tax cheats.

The founders of Keroche are also battling a suit on suspicion of evading taxes amounting to Sh14.4 billion, a further twist to the firm’s perennial wars with the revenue agency.

Mrs Karanja and her husband Joseph Karanja were arrested in August 2019 for alleged tax evasion in their alcohol production business since 2015.

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