Conflicts in two laws have stalled the sale of the government’s 43.77 percent stake in a wines and spirits firm that distributes Amarula and Viceroy, delaying a bidding for shares valued at about Sh3.3 billion.
The freshly amended Privatisation Act, which guides sale of shares, is in conflict with the Public Finance Management (PFM) Act, 2012 on the transaction in companies where the government does not have majority ownership.
Privatisation Act, which was amended last year, exempts firms where the government is a minority owner from following strict steps, including seeking parliamentary and Cabinet approval ahead of stake sales.
Conflicts in two laws have stalled the sale of the government’s 43.77 percent stake in a wines and spirits firm that distributes Amarula and Viceroy, delaying a bidding for shares valued at about Sh3.3 billion.
The freshly amended Privatisation Act, which guides sale of shares, is in conflict with the Public Finance Management (PFM) Act, 2012 on the transaction in companies where the government does not have majority ownership.
Privatisation Act, which was amended last year, exempts firms where the government is a minority owner from following strict steps, including seeking parliamentary and Cabinet approval ahead of stake sales.
A source familiar with the deal reckons that South Africa’s beverage firm Distell Group failed to insert the pre-emptive clause in a shareholder agreement with the government, after it became a majority shareholder in KHEAL following its acquisition of an extra 26.4 percent stake from Centum Investment.
It acquired the Centum stake in 2017 for Sh1.1 billion, giving it majority control, and its omission of the pre-emptive rights will hurt Heineken if it has ambition to fully acquire the Kenyan and avoid a hostile co-owner.
Majority shareholders often push for the pre-emptive rights to maintain control by avoiding dilution in the event of new shares being issued and avoid aggressive partners from sale of existing stocks.
The pre-emptive rights require that the shares being sold in a firm cannot be offered in the open market until existing shareholders have been given a chance to invest.
Before 2017, Distell was the minority shareholder behind the government and Centum, with its initial 26 percent stake that it had acquired from State for Sh860 million.
The State now seeks to fully exit KHEAL, triggering a bidding war that looks set to attract the interests of private equity firms and high-net-worth investors warm to beer and spirits stocks as a relatively cheap way to benefit from growth in alcohol sales in emerging markets like Kenya.
International brewers are increasingly reviewing their investments amid a drop in global alcohol consumption.
Heineken’s acquisition of South AfricaDistell marked the entry of a major brewer with local production in the Kenyan market that is dominated by East African Breweries Limited (EABL), a subsidiary of Diageo Plc.
London-listed Diageo, maker of Johnnie Walker whisky and Captain Morgan rum, said in December it had agreed to sell its 65 percent stake in EABL to the Japanese brewer Asahi Holdings, as it implements a turnaround strategy to reduce debt and revive growth.
The Diageo stake sale is worth Sh300 billion.
KWAL commenced operations as a 100 percent parastatal owned by KDC before a divestiture process, which began with the 2014 sale of an initial 26 percent stake to Distell Group.
The sale of the government’s stake in the wines and spirits manufacturer is part of plans to raise funds through divestiture in multiple firms where the State has substantial or full ownership.
It has since sold stakes in Kenya Pipeline Company and Safaricom.