The sale of Centum Investment Company’s shares in the regional Coca-Cola bottling companies has reduced its possible liabilities to Ksh1.5 billion.
The Nairobi Securities Exchange-listed company sold its 27.6% holding in Nairobi Bottlers for Ksh19.3 billion in 2019 and its 53.9% interest in Almasi Beverages, the proprietor of Mt Kenya Bottlers, Kisii Bottlers, and Rift Valley Bottlers.
As a condition of the agreement, Centum agreed to give Coca-Cola Business Africa (CCBA)a bank guarantee in the amount of $34.4 million (Ksh4.1 billion) to cover any prospective claims, including tax demands from the Kenya Revenue Authority (KRA).
This comes after the supreme court early this year stopped KRA from claiming taxes on the bottling firms a move that saw Centum Investments’ potential liability from the transaction fall by a substantial amount.
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The company noted that as of March of this year, there had been no claims. Despite the KRA asking the bottling businesses for a total of Ksh5.6 billion in excise duties on returnable bottles, the transaction with CCBA was nevertheless concluded.
However, Centum’s exposure was reduced because, at the time of selling the businesses to CCBA, which is majority-owned by Atlanta-based beverage juggernaut The Coca-Cola Company, it did not fully own the companies.
A Supreme Court decision issued on February 10, 2022, blocked KRA’s tax claim, prevented the taxman from restarting the case, and released Centum from the debt. Following the agreement on the compensation arrangement with CCBA, Centum secured a guarantee for the whole sum from Stanbic Bank Kenya Limited, and the facility was charged against Centum’s portfolio of marketable securities, which includes Treasury bonds.
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After losing in earlier courts, the Supreme Court ruled that the KRA should put the case to rest. Between 2006 and 2009, the KRA attempted to collect excise taxes on expenses related to washing and sanitizing returned bottles.
In mergers and acquisitions, bank guarantees are frequently used by buyers as insurance against obligations like taxes and contract disputes that could arise after the deal is closed.
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