East African Breweries Limited (NSE: EABL) – KES 11 Billion Medium Term Note Program

EABL Corporate Bond Offer

Following the maturity of EABL’s short-term paper worth KES 5.4 billion in January the brewer is seeking additional financing from the market, this time offering up to KES 11 billion under the medium term note program. The bond will be issued in two tranches with the first tranche worth KES 5 billion running from 4th March 2015 to 17th March 2015. The lender will utilize the funds from the offer for general commercial purposes, working capital investment and long-term capital expenditure. The offer is also part of a series of measures to ensure a well-structured balance sheet.

Expectation on Subscriptions

We expect high subscription driven by strong investor confidence levels after the brewer reported a KES 4 billion cut in short-term borrowings which narrowed from KES 12.54 billion as of December 2013 to KES 9.67 billion in the 6 months to December 2014. The bank overdraft also declined to KES 566 million from KES 1.75 billion in the period under review. Nonetheless, the brewer will continue to keep a close eye on finance costs which were seen rising in the first half of its FY 2014/2015. The only significant debt held by the company is the 5 year loan worth KES 19.5 billion from its majority shareholder Diageo.

In the Event of Oversubscription

Applications for subscriptions for amounts over KES 500,000,000 will first receive 100% allocation (“Initial Allocation Amount”). Then applications for subscriptions for amounts below KES 500,000,000 will receive pro-rata allocation of the amount available being the Principal Amount less the Initial Allocation Amount.