EABL goes to market for Sh6bn

Beer maker East African Breweries Limited (EABL) has returned to the market to raise Sh6 billion through a medium term note. This is the second phase of an Sh11 billion debt raising drive by the brewer meant to restructure its balance sheet and fund expansion. “The second and final tranche which has already received approval from the Capital Markets Authority will provide EABL an opportunity to match its borrowings with its medium-to-long term capex and working capital investment aimed at building capacity and optimizing operations. The issue is aimed at achieving an optimal capital structure,” EABL said in a statement. The decision to go raise funds through debt comes at a time private sector lending has been on declining, since the coming into effect of the interest capping law. However the timing of the issue has been deemed unfavorable as government securities offer a better rate of return. Analysts say with the government offering yields of 13.5 percent, EABL will be hard pressed to convince investors to take up the offer. The note will bear interest at a fixed annual rate of at least 12.25 percent until maturity in 2022. “Liquidity is there but are demanding for higher yields. You have seen the suspension of the 182-day T-bill and the recent IFP they didn’t get as much as they wanted because they rejected what they considered expensive bids,” Maurice Oduor from Cytonn Investment said. “They will have to pay a significant premium above that to make this paper attractive to investors,” he added. ABC Capital Corporate Finance Manager Johnson Nderi however suggests the brewer was better off going to market instead of taking up a commercial loan. “EABL is better off doing it now because marco economic indications are that interest rates will be going up,” Mr Nderi said. The offer opens on Monday with investors required to pay a minimum of Sh100,000 to participate. In 2015, EABL’s offer was 180 percent over subscribed raising the Sh5 billion.

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