A section of the EABL plant in Ruaraka. FILE PHOTO | NMG
East African Breweries Limited (EABL) has
breached the terms attached to a Sh11 billion corporate bond, prompting
the Nairobi Securities Exchange-listed firm to get a waiver of the
conditions from the Capital Markets Authority (CMA).
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.
EABL says this ratio is partly due to the receipt
of new bank loans in the period. “For the medium term note, the Capital
Markets Authority has exempted the group from maintaining a current
assets ratio of 1 until 2020,” the company says in its latest annual
report.
EABL raised Sh11 billion in two tranches of unsecured bonds.
Investors gave the company Sh5 billion at an annual interest rate of
12.95 per cent, with this batch of securities set to mature in March
2020.
The brewer also received Sh6 billion in the
second issue which has an annual interest rate of 14.17 per cent and a
redemption date of March 2022.
The company has increased its borrowing in recent years, partly 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.
It
received loans amounting to Sh300 million for the construction of the
plant in the year ended June, with more funding set to be sourced as the
project progresses. The company had undrawn available funding of Sh13.4
billion as of June.
The brewer, while noting that it has net current liabilities of
Sh4.2 billion, says this is likely to change as it seeks to reduce short
term debt in favour of longer-term borrowings.
“As
directors, we are satisfied that this is transient in nature as the
group continues to align its capital expenditure with long term
funding,” the company said.
EABL was the latest to
raise funds from a bond in April last year in a market where other
issuers have defaulted or restructured their obligations, causing major
losses for bondholders whose claims were unsecured.
ARM Cement
,
Nakumatt Holdings, Chase Bank and Imperial Bank are some of the
borrowers that have defaulted on their bonds and commercial papers.
Investors
in the instruments have traditionally asked for above-market interest
rates as compensation for lack of collateral and looser covenants.
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