East African Breweries Plc (EABL) will now rely on long-term borrowings to fund its capital expenditure, a move it says will improve its liquidity.
The company has several multi-billion-shilling loans due within a year, contributing to overall short-term liabilities exceeding its current assets.
“The group’s statement of financial position indicates a net current liabilities position of Sh5.6 billion (2020: Sh5 billion),” EABL says in its latest annual report for the year ended June.
“The directors believe that this is transient in nature as the group continues to align its capital expenditure with long term funding.”
The company noted that the Capital Markets Authority has exempted it from maintaining a current ratio of one –matching current assets to short term liabilities — until June 2023.
EABL says its board investment committee held eight meetings in the review period during which members reviewed new capital expenditure projects and the restructuring of funding proposals.
One major short-term loan is an Sh11 billion facility the brewer took from Absa Bank Kenya and its sister banks in Africa.
The loan matures in July 2022 and has an interest rate of 10.3 percent.
The brewer is currently in the market to raise Sh11 billion through a new corporate bond, with the proceeds to be used in retiring part of the short-term debt among other corporate uses.
“The proceeds of the issue … will be used by EABL to repay certain borrowings taken in the ordinary course of business, to provide working capital for the group across East Africa and to refinance certain short-term borrowings,” the brewer said in a notice.
The unsecured bond will mature in five years and will have a fixed interest rate of 12.25 percent.The offer closes on October 21. Bondholders will invest a minimum of Sh100,000 and additional amounts in multiples of Sh10,000.Banks and bondholders have been willing to lend to EABL on the strength of its profitability and position as the brewer with the largest market share in the region.“The group is not in breach of any financial covenants for facilities issued by its bankers as 0f June 30, 2021. The group had available undrawn facilities of Sh11.4 billion as of June 30, 2021 (2020: Sh4.1 billion),” EABL says in the report.