East African Breweries Limited (EABL) #ticker:EABL has secured a Sh12.5 billion long-term loan from Standard Bank Group to fund the ongoing construction of its Senator Keg factory in Kisumu.
The completion of the factory is expected to create 110,000 direct and indirect jobs and push sorghum demand from the current 20,000 tonnes to around 40,000 in the next five years.
The regional brewer says the South Africa-based lender has committed to advance the business Sh7.5 billion with Stanbic Holdings, its Kenyan subsidiary, funding the balance.
The EABL, which is 50.02 per cent owned by multinational brewer Diageo, says it will pump in Sh2.5 billion of its own cash into the Sh15 billion factory whose construction is expected to be complete by July 2019.
“We managed to secure a Sh12.5 billion long-term facility,” said Gyuri Geiszl, EABL’s finance director. “We have just drawn down a small portion, about Sh2 billion, since the project has just started. As we move along, we shall generate the cashflow to fund the remaining portion.”
The EABL did not disclose the tenure of the facility or the applicable interest rate.
Stanbic Holdings has been one of EABL’s four principal bankers, supporting other capital intensive projects alongside Barclays Bank of Kenya #ticker:BBK , Standard Chartered Bank and Citibank.
The lender has in the past relied on its parent company Diageo to fund mega projects, an option EABL most likely considered before settling on Standard Bank and its Kenyan subsidiary.
“Six months ago, we had a couple of ideas of how we were going to fund the Kisumu brewery, but we eventually settled on debt,” Mr Geiszl said without disclosing the options dropped.
Construction of the upcoming factory, which sits on land occupied by defunct EABL brewery, commenced in July with its projected annual production capacity being 100 million litres.
Senator Keg, a drink dispensed in mugs from barrels, has emerged as beer volume driver for the regional brewer due to its low purchase price of about Sh30 per 300ml mug.
In the half year under review, this drink did not perform as per previous years, with sales dropping by Sh1.5 billion.
EABL’s management says this drop in volumes partly resulted from the factory’s closure for two months beginning July to facilitate Sh436 million capacity expansion works.
Increased inflation, the extended electioneering period and a Sh5 increase in the price per mug, following changes in excise tax applicable, also dragged down consumption.