Capital Markets

EABL issues new corporate bond, targets Sh11bn

EABL

EABL plant in Ruaraka, Nairobi. The beer maker seeks to raise Sh11 billion debt through a corporate bond. PHOTO | FILE

Beer maker, East African Breweries Limited, is seeking to raise Sh11 billion debt through a corporate bond barely two months after maturity of its short-term debt.

The company targets Sh5 billion in the first tranche of the bond which will be offered to investors for two weeks beginning Wednesday for a return of 12.25 per cent. A Sh5.4 billion commercial paper issued by the brewer last year matured in January.

“It is for general use and for capital expenditure, replacing our now retired commercial paper programme,” said EABL’s chief executive Charles Ireland, adding that the issue was “part of a series of moves to ensure we have a well-structured balance sheet.”

In the six months to December, EABL had reported a Sh4 billion cut in its short-term borrowings and bank overdraft as it kept an eye on rising financing costs.

Despite the debt cut, its financing costs went up to Sh2.18 billion compared to Sh2.04 billion in December 2013.

The brewer’s short-term borrowings stood at Sh9.67 billion, down from Sh12.54 billion in June 2014, while the bank overdraft dropped to Sh566 million from Sh1.75 billion over the six-month period.

A major debt in the EABL books is a Sh19.5 billion five-year loan from its majority shareholder, Diageo, taken in 2011.

“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.

Mr Ireland, however, dismissed this position, saying the issue had no connection to the intercompany loan.

As per the information memorandum, the company will use a bulk of the bond, Sh5.9 billion in working capital investment and general commercial purposes while Sh5.1 billion would go to long-term capital expenditure.

Minimum subscription to the three-year offer is Sh100,000. Currently, the government is paying 10.9 per cent for a one-year Treasury paper.

EABL will have to receive at least Sh2.5 billion from the bond to consider it successful and thereafter list it on the Nairobi Securities Exchange. CfC Stanbic and Barclays Bank are the arrangers of the bond issue.

In December, a debt issue by real estate firm, Home Afrika, became the first publicly issued bond to be unsuccessful in the Kenyan market.

EABL announced an 11 per cent net profit growth in its half-year performance boosted growth in sales.

The beer maker earned a net profit of Sh4.6 billion in the six months to December compared to Sh4.1 billion in similar period in the previous year.

In Wednesday’s trading on the bourse, EABL’s share price dropped to Sh295 a unit from previous day’s Sh298 with 2,463,800 shares traded.