EABL takes Sh11bn loan from Stanbic and StanChart

EABL Group Managing Director Andrew Cowan. FILE PHOTO | NMG 

Beer maker East African Breweries Limited (EABL) #ticker:EABL has borrowed Sh11.5 billion from Kenyan units of Standard Chartered and Stanbic banks to pay off a similar-sized loan taken from its London-based parent Diageo.

The local loan is intended to save the Nairobi Securities Exchange-listed firm an additional tax burden that applies when a subsidiary takes a loan from its parent company.

Standard Investment Bank (SIB) disclosed the beer manufacturer’s debt refinancing in a research note following an interview with the EABL management.

“It (EABL) fully repaid the loan and refinanced it locally in Kenya Shillings at the same terms. The restructure will enable EABL to pay close to the effective corporate tax rate of 30 percent going forward,” said SIB in its research note.

Banking sources identified StanChart #ticker:SCBK and Stanbic Kenya as the lenders of the new loan. Stanbic, however, declined to disclose the specific amount it advanced to the brewer.

The Diageo loan, which was unsecured, was priced at an interest rate of two percent above the defunct Kenya Bankers’ Reference Rate (KBRR).

EABL took the loan in 2012 to fund the buyback of a 20 percent stake in its subsidiary Kenya Breweries Limited, which it had earlier sold to its partner-turned-rival SABMiller.

The refinancing marks the latest instance of the brewer piling on debt, mainly to fund new capital expenditures. EABL for instance, is building a Sh15 billion factory in Kisumu that will produce its Senator beer brand that targets low-income consumers.


The new plant is expected to be commissioned in the coming weeks and will help the company grow its sales, SIB noted.

The increase in debt saw the company breach the terms attached to an Sh11 billion corporate bond, prompting it to get a waiver of the conditions from the Capital Markets Authority (CMA).

Exemption from observance of the ratio lasts until 2020. The brewer is required to maintain a current ratio – a measure of a company’s ability to meet its short-term obligations — of at least 1.

This means that its current assets including cash balances should at least match short-term liabilities such as bank overdrafts and supplier debt. The ratio fell short at 0.9 in the half-year ended December.

EABL raised Sh11 billion in two tranches of unsecured bonds. Investors in March 2015 gave the company Sh5 billion at an annual interest rate of 12.95 percent, with this batch of securities set to mature in March 2020.

EABL plant in Nairobi

EABL plant in Nairobi. FILE PHOTO | NMG

The brewer also received Sh6 billion in April 2017 in the second issue which has an annual interest rate of 14.17 percent and a redemption date of March 2022.

EABL was the latest to raise funds in a market where other issuers have defaulted or restructured their obligations, causing major losses for bondholders whose claims were unsecured.

ARM Cement #ticker:ARM, Nakumatt Holdings, Kaluworks, Chase Bank and Imperial Bank are some of the borrowers that have defaulted on their bonds and commercial papers.

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