Last year, the company sold its stakes in Almasi Beverages and Nairobi Bottlers to CCBA for a total of Ksh 19.3 billion. The Nairobi Securities Exchange (NSE)-listed firm agreed to compensate the buyer of its Coca-Cola beverage businesses to the tune of Ksh3.7 billion representing tax demands by the Kenya Revenue Authority (KRA). The beverage company required Centum to guarantee that it would settle the tax liability should KRA win the battle in court.
66.5% of CCBA is owned by soft drinks giant Coca-Cola while 33.5% of it belongs to Gutsche Family Investments.
Centum had booked gains of Sh12.3 billion on the two transactions and the pending tax demand risks eroding the profit by a substantial amount.
“Under the terms of the respective share purchase agreements … Centum is required to provide a guarantee of $34.4 million (Sh3.7 billion) to CCBA against general and contingent liabilities (including tax liabilities) that were unresolved as at the transaction date,” the company says in its latest annual report.
Centum says it has obtained a bank guarantee from Stanbic Bank Kenya Limited to cover the full amount. The guarantee is in turn secured by a charge on Centum’s portfolio of marketable securities which is mostly made up of fixed-income instruments including government bonds.
This means that should the bottlers, now owned by CCBA, be required to pay the tax, they will be compensated by Stanbic Bank. The lender will then seek compensation from Centum and will have a right to liquidate the investment firm’s portfolios that are held as security.