The first tranche of East African Breweries Ltd (EABL) bond has attracted over Sh9 billion to far exceed the Sh5 billion target.
In a statement announcing the results, EABL said it hit Sh9,047,350,000 subscriptions against the Sh2.5 billion minimum needed for the issue to be a success.
Investors in the bond will be paid 12.25 per cent a year as interest (coupon) for a period of three years.
In terms of tenor and return, the closest listed government security is a two-year bond issued in February 2013 at a coupon rate of 12.8 per cent.
Due to the oversubscription, an investor will not get the full amount asked for, but will be allocated 55.285 per cent of the bid amount.
This means the offer does not have a greenshoe option, which allows an issuer to take more than the targeted amount if there is an oversubscription.
The fund-raising came only two months after the beer manufacturer retired its Sh5.4 billion debut commercial paper taken last year.
Potential investors for the three-year paper were required to put in a minimum of Sh100,000.
The proposed date for uploading the notes into investors’ central depository and settlement accounts is Tuesday while the listing date is Wednesday. The lead arrangers for the issue were Barclays Bank of Kenya, Barclays Financial Services, CfC Stanbic and SBG Securities.
SBG Securities was also the sponsoring broker.
The transaction counsel were Coulson Harney Advocates while reporting accountants were PricewaterhouseCoopers.
The cash is part of a restructuring of EABL balance sheet in addition to capital expenditure and general use.
“It is for general use and for capital expenditure, replacing our now retired commercial paper programme,” EABL’s chief executive Charles Ireland said in an earlier communication, noting the issue was “part of a series of moves to ensure we have a well-structured balance sheet”.
In the six months to December 2014, EABL’s debt costs went up to Sh2.18 billion compared to Sh2.04 billion in December 2013. By last December, the short-term borrowing stood at Sh9.67 billion down from Sh12.54 billion in June 2014, while bank overdraft fell to Sh566 million from Sh1.75 billion over the six-month period.
EABL’s majority shareholder, Diageo, has also advanced the Kenyan subsidiary Sh19.5 billion five-year loan according to its books.
Some analysts have argued that the proceeds from the bond are partly intended to settle some of the intercompany loans. “We believe part of the strategy for this offer is to also partially reduce the related party, arm’s length foreign-denominated loan payable in 2017, ” said analysts at Standard Investment Bank.
EABL net profit grew by 11 per cent in the half year to last December, to Sh4.6 billion compared to Sh4.1 billion in the same period in the previous year.