Listed beer maker East African Breweries Ltd has extended the term of its Ksh5 billion ($50 million) debt in a move meant to ease the company’s bond repayment obligations.

The brewer, in a pricing supplement issued on Wednesday, said it will be repaying the first tranche of its medium term note (corporate bond) in 2020 and not 2018, as stated in the earlier offer.

To compensate for the extension, EABL will be paying the bondholders a higher interest rate of 12.95 per cent, up from the earlier 12.25 per cent.

“Notification has been given to the Nairobi Securities Exchange and Central Depository and Settlement Corporation to amend the terms of the notes as at June 22,” said EABL in the pricing supplement.

The listed brewer notes that the bondholders were called to an extraordinary general meeting to be notified of the changes and given the option of taking a prepayment offer.

READ: EABL profits up 7pc as govt cuts tax

Sources privy to the details of the meeting told The East-African that there was a condition during the vote that if the majority of the holders agreed to the extension, then the decision would be binding on all of them.

Second, if the majority voted in favour of the extension, those who were opposed to it would not have an option of early redemption — however, that option would be available for the yes votes in future.

“When you do an extension in essence you are saying you are foreseeing you will not be able to repay so you restructure early,” said an analyst who did not wish to be named.

He noted the money was not marked for capital expenditure but rather for working capital and normal business operations, signalling EABL was not holding it to execute a project.

Expansion

The brewer early this month disclosed plans to construct a Ksh15 billion ($150 million) plant in the western-region Kisumu over the next two years.

“The modalities of funding for the project are still under deliberation and shall be communicated to the regulators and shareholders in due course,” said the company during the disclosure of the Kisumu plant.

EABL raised Ksh6 billion ($60 million) in March when it issued the second tranche of its corporate bond. The brewer offered investors a return of 14.1 per cent, which is higher than the current maximum price of loan set at 14 per cent by the government.

Given its size, EABL could have been in a position to bargain for a lower loan rate from banks, with analysts pointing out that the pricing of the bond further signalled liquidity problems.

READ: EABL tipped a good bet among African beer-makers

With a bank loan, the repayments kick in after 30 days but with a bond, one is only expected to pay interest after six months and principal amount on maturity, or in the case of EABL, five years.

In a valuation report, analysts at AIB Capital had indicated EABL was under liquidity pressure with its current assets lower than short-term liabilities.

“Current ratio stood at 0.77 as at 2016 and 0.82 per cent as at half year of 2017. EABL is required by Capital Markets Authority to maintain a current ratio of above one as long as the medium term note programme is ongoing,” reads the valuation report by AIB Capital.

The company was banking on using the $60 million raised in April to restructure its balance sheet so as to comply with CMA regulations.