Given its size, EABL could have been in a position to bargain for a
lower loan rate from banks, with analysts pointing out that the pricing
of the bond further signalled liquidity problems. PHOTO FILE | NATION
Listed beer maker East African Breweries Ltd has extended the
term of its Ksh5 billion ($50 million) debt in a move meant to ease the
company’s bond repayment obligations.
The brewer, in a
pricing supplement issued on Wednesday, said it will be repaying the
first tranche of its medium term note (corporate bond) in 2020 and not
2018, as stated in the earlier offer.
To compensate for
the extension, EABL will be paying the bondholders a higher interest
rate of 12.95 per cent, up from the earlier 12.25 per cent.
“Notification
has been given to the Nairobi Securities Exchange and Central
Depository and Settlement Corporation to amend the terms of the notes as
at June 22,” said EABL in the pricing supplement.
The
listed brewer notes that the bondholders were called to an extraordinary
general meeting to be notified of the changes and given the option of
taking a prepayment offer.
Sources privy to the details of the meeting told The East-African that
there was a condition during the vote that if the majority of the
holders agreed to the extension, then the decision would be binding on
all of them.
Second, if the majority voted in favour
of the extension, those who were opposed to it would not have an option
of early redemption — however, that option would be available for the
yes votes in future.
“When you do an extension in
essence you are saying you are foreseeing you will not be able to repay
so you restructure early,” said an analyst who did not wish to be named.
He
noted the money was not marked for capital expenditure but rather for
working capital and normal business operations, signalling EABL was not
holding it to execute a project.
Expansion
The
brewer early this month disclosed plans to construct a Ksh15 billion
($150 million) plant in the western-region Kisumu over the next two
years.
“The modalities of funding for the project are
still under deliberation and shall be communicated to the regulators and
shareholders in due course,” said the company during the disclosure of
the Kisumu plant.
EABL raised Ksh6 billion ($60
million) in March when it issued the second tranche of its corporate
bond. The brewer offered investors a return of 14.1 per cent, which is
higher than the current maximum price of loan set at 14 per cent by the
government.
Given its size, EABL could have been in a
position to bargain for a lower loan rate from banks, with analysts
pointing out that the pricing of the bond further signalled liquidity
problems.
With
a bank loan, the repayments kick in after 30 days but with a bond, one
is only expected to pay interest after six months and principal amount
on maturity, or in the case of EABL, five years.
In a
valuation report, analysts at AIB Capital had indicated EABL was under
liquidity pressure with its current assets lower than short-term
liabilities.
“Current ratio stood at 0.77 as at 2016
and 0.82 per cent as at half year of 2017. EABL is required by Capital
Markets Authority to maintain a current ratio of above one as long as
the medium term note programme is ongoing,” reads the valuation report
by AIB Capital.
The company was banking on using the
$60 million raised in April to restructure its balance sheet so as to
comply with CMA regulations.
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