East African Breweries Limited plant in Ruaraka, Nairobi. FILE PHOTO | NMG East African Breweries Limited (EABL) has received a three-year extension to remain in breach of terms attached to its Sh6 billion corporate bond, that required its current assets including cash to match short-term liabilities like supplier debt.
The brewer was required to maintain a current ratio — a measure of a company’s ability to meet its short term obligations — of at least 1 but this has proved elusive since last year, with Coivd-19 complicating the situation.
This has prompted EABL to make a fresh Capital Markets Authority (CMA) application to exempt it from keeping its current assets including cash balances at same level with short term liabilities such as bank overdrafts and supplier debt.
EABL had last year received a one-year waiver to end of 2020 but this has now been extended to end of 2023, shielding it from the risk of the bond being classified as current liability.
“For the medium-term note, the CMA has exempted the group from maintaining a current assets ratio of 1 until June 2023,” says EABL in its latest annual report.
EABL says this ratio fell short at 0.63 partly due to the receipt of new bank loans in the period.
EABL had Sh44.94 billion debt as at end of June with Sh8.03 billion classified as current liabilities, meaning repayable within 12 months.
The current assets were valued at Sh5.076 billion during the review period, putting the current assets ratio at 0.63.
“The directors believe that this is transient in nature as the Group continues to align its capital expenditure with long term funding,” says EABL.
The company has increased its borrowing in recent years, partly to fund new capital expenditures such as the Sh14 billion investment in the Kisumu brewery in 2018.
EABL issued a fixed medium term note of Sh5 billion in March 2015, followed by another one worth Sh6 billion in April 2017. The first one matured last March while the second tranche will mature in March 2022.The Sh6 billion outstanding bond is unsecured and has an annual interest rate of 14.17 percent.This means that the CMA exemption covers the entire remaining period of the bond and takes pressure off EABL whose business has suffered on state closure of bars to contain Covid-19 spread.EABL announced a 39 percent drop in net profit to Sh7 billion — the lowest in six years —for the year ended June 2020 […]