Brewing Industry in Nigeria

FACILITY APPROVAL MEMORANDUM

Prepared By                :        Group 1, ELP 140

Department                :         GTBank Training School

Date                        :         October 9th, 2014

Borrower                 :        Aveona Breweries Plc

Business                 :        Brewery

Location                :         Aba, Abia State  

Ownership                :        Armstrong Overseas Plc        60%

Local Investors                35%

Ametek Ltd                        5%

Facility Type         :            Term Loan (New)

Amount                :        N4,200,000,000

Purpose                 :        To part - finance the expansion of an existing plant in

Aba, Abia State, Nigeria.

Tenor                        :         4 years

Equity Contribution:        30% (N1,800,000,000)

Interest Rate         :        18% per annum subject to prevailing market rate

Management Fee        :        0.75% of the facility payable upon acceptance.

Processing Fee        :        0.25% of the facility payable upon acceptance.

Disbursement        :        Would be done in tranches based on the presentation of a Completion Certificate signed by the project consultant.

COT         :        N1 per mille

Availability        :        Upon meeting conditions precedent to drawdown

Repayment                :        16 Equal principal repayment of N262,500,000 to be

paid quarterly.

Repayment Source:         Cash flow from operating activities

Security                :         Legal Mortgage on the plant of Aveona Breweries in Aba  

valued at N9Billion (Open market value), and a Forced Sale Value of N6 Billion by Diya Fatimilehin and Co. in July, 2014.

CONDITIONS PRECEDENT TO UTILIZATION

The facilities would become available to the borrower upon receipt of the following documents by Guaranty Trust Bank PLC:

• Board resolution accepting the facilities and indicating those authorized to receive it on behalf of the company.
• Receipt of duly signed acceptance letter by authorized signatories of Aveona  Breweries Plc.
• Duly executed term loan agreement.
• Receipt of documents to perfect the collateral.
• Comprehensive Insurance cover on all assets of Aveona Breweries Port - Harcourt noting Guaranty Trust Bank as first loss payee.

OTHER CONDITIONS

• A late repayment of 0.5% flat per month (approx. 6% p.a.) over the approved lending rate shall be applied on the outstanding unpaid obligation.
• All legal fees, stamp duties and other costs associated with the documentation, execution and administration of these facilities will be borne by the borrower.
• All legal or other costs and expenses arising from the facility or of enforcing the terms & conditions herein should such occasion ever arise shall be chaired from the borrower.
• It is expected that borrower will continue to improve on its business relationship with the bank through the operation of its current account.
• The bank may use any information relating to the borrower for evaluating the credit application. The bank may at its sole discretion as it shall consider appropriate give to and receive from credit bureaus and reference agencies whether based locally or abroad, other financial institutions, regulatory and law enforcement agencies and relevant third parties information about the borrower, including information on your Directors and other personnel, transaction and conduct on your account together with details of any non-payment or delayed payments for the purpose of assisting them and/or the bank in making lending or rating decision about the borrower.
• All other terms and conditions as contained in the facility Agreement shall be binding upon the borrower.

REASONS AND JUSTIFICATION FOR THE REQUEST

COMPANY BACKGROUND

Aveona Breweries Plc, a public company currently quoted on the Nigerian Stock Exchange, was incorporated on 29 April 1962. Joboct Breweries Plc has locations in Lagos, Port Harcourt, Kaduna and Benin regions in Nigeria. The company brews and markets alcoholic and non – alcoholic products such as lagers, stouts and non – alcoholic malt drinks. It has been in existence for over 25 years and is the second largest brewer in Nigeria in terms of product turnover, dominating the industry with a market share of about 30%.[pic 1]

Ownership

Joboct Breweries Plc is owned by a foreign company and Nigerians; the foreigners however own a major percentage (65%).

Below is the ownership structure of the company:

Bailex Inc. (France)                        65%

Local Investors                        35%

Board and Management

The company’s affairs are directed by the following:

Mr. Olayinka Walters :         Chairman/CEO

Dr. John Rodriguez :        Vice Chairman

Mr. Michael Osadebe:        Managing Director

The management team has requisite skills to manage the company effectively.

INDUSTRY ANALYSIS

Brewing Industry in Nigeria

Nigeria’s beer industry is a very vital component of Nigeria’s non – oil sector, which has largely contributed to economic growth in recent times. The industry is also pivotal to the manufacturing sector of Nigeria. The beer consumption in Nigeria has been experiencing growth of 9% annually over the last years. This growth was as a result of foreign investments in new production plants, raising disposable income, and changing consumption patterns.

Joboct Breweries Plc is a medium player in the brewery sector. In the last decade, the Nigerian brewery industry has faced a remarkable surge in the levels of struggle for dominance. There is stiffer rivalry among the existing players, encroachment by new competitors, threat of substitutes as well as bargaining power of suppliers and buyers. To gain and maintain market share, the brewery giants are increasingly adopting product innovation, packaging and branding, pricing differentiations, distribution models and channels, strategic global alliances, market segmentation, adverts and sponsorship.

Fundamental Drivers of the Brewery Industry

• Large and Growing Population: According to Nigeria’s Population Commission, Nigeria is the most populous nation in Africa with over 150 million people and a population growth rate of 3.2% per annum. Even if the segment of the population with religious aversion to alcohol (about 50%) was discounted, Nigeria would still have a population equal to the second most populous nation in Africa, Egypt, with about 84 million people; thus Africa’s potentially largest beer market. Nigeria’s population dynamics are even more scintillating when we consider the rural-urban split and age demography of her population.

The rural-urban split is estimated at 0/50 with an urbanisation rate of 3.8% per annum. When we consider Nigerian’s brewery market, with a heavy tilt towards the mainstream and premium segment, the potential for the beer market is huge. At an urbanisation rate of 3.8% or approximately 3 million people, the brewery markets growth potential is reasonably assured. Furthermore, rural dwellers, known to consume mostly homebrews (Sapele Water, Brukutu and Palm Wine), offer tremendous growth potential for the relatively infantile economy beer segment, as it presents a natural transition to packaged commercial alcoholic drinks for lower income rural dwellers.