Brewer raises stake in its Serengeti subsidiary to 72.5 pc

East African Breweries Limited (EABL) has raised its stake in Serengeti Breweries to 72.5 per cent after converting a Sh15.3 billion loan to the Tanzanian subsidiary into equity.

The Nairobi Securities Exchange-listed firm, whose ownership previously stood at 51 per cent, made the transaction to ease the subsidiary’s debt burden. Serengeti’s minority shareholders, who were diluted in the deal, could restore their original 49 per cent stake in the future by ceding half of their dividend entitlement going forward.

“On July 1, 2017, the company entered into an agreement with the non-controlling shareholders of its subsidiary, Serengeti Breweries Limited (SBL), to convert all its outstanding loans receivable to the subsidiary into equity shares, without proportionate capital contribution by the non-controlling shareholders,” EABL says in its latest annual report.

“The transaction resulted in an increase in the effective control of the subsidiary from 51 per cent to 72.5 per cent.”

The transaction came after the brewer reached a settlement with Tanzanian authorities over its acquisition of Serengeti in 2010 for Sh4.9 billion.

EABL paid an undisclosed fine to Tanzanian regulators who accused the company of not growing Serengeti’s business as per the agreed takeover terms.

The brewer paid a Sh2.9 billion premium when it bought the 51 per cent stake in the company, arguing that the amount reflected the anticipated synergies and benefits of acquiring Serengeti’s customers. The company has written off Sh285 million of that premium, known as goodwill, in a signal of weaker-than-expected performance of the subsidiary.

The brewer’s sales in Tanzania stood at Sh8.1 billion in the year ended June, up 14.2 per cent from Sh7.1 billion a year earlier. This represented 11 per cent of the brewer’s total sales of Sh73.4 billion. EABL did not disclose whether or not Serengeti is profitable.