Cheers to That: BrewDog considers issuing £10m bond with “annual payment in beer”

September 11, 2019

3 min read

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What's going on here?

James Watt, head of the craft brewery BrewDog, is mulling over issuing a £10 million bond that will offer investors annual payment in beer and well as financial returns, with a coupon “50% in beer and 50% in cash”.

What does this mean?

A bond is an I.O.U. whereby the issuer, who wants to raise capital, is given a loan by an investor. The issuer promises to repay the loan at a certain point in the future (the maturity date). However, a bond investor does not have to hold the bond until it reaches maturity: it can be traded on the secondary market. The issuer will pay the investor interest (known as the coupon) at an agreed interval throughout the bond’s lifetime. Here are some key features:

  • The coupon rate is the interest rate paid to an investor.
  • The face value is the amount of money that the bond will be worth when it reaches maturity. This face value is also used to determine the coupon rate.
  • The issue price is the price at which the issuer sells the bond. Note that this is different to the face value, as the issue price can fluctuate according to supply and demand or credit ratings for example.
  • The maturity date is the day when the bond issuer will pay the bond holder the face value of the bond.

BrewDog are considering issuing a bond (with a face value of £10 million) that will pay investors a coupon rate, 50% of which will be paid in beer.

What's the big picture effect?

BrewDog broke into the competitive brewery market in 2007 through successful marketing strategies such as its many attempts to create the world’s strongest beer (a 55% freeze-distilled beer named “The End of History”) and branding that highlights its “punk” ethos. With exciting marketing and passion for beer driving the success of the brand, it is no wonder that BrewDog thinks that paying investors interest in beer could add to this image and “involve [their] community”.

Yet, whilst branding is important, investors will be considering a variety of factors. The funds raised by the bond would be used to continue BrewDog’s expansion into the US, Germany and Australia. The company has already sold two 4-year bonds worth £2.5 million and £10 million in 2016 and 2018 respectively. The company initially raised over £70 million through crowdfunding and, after a £213 investment in 2017 from US private equity fund TSG Consumer Partners, was valued at £1 billion. This is a testament to BrewDog’s ability to inspire confidence in investors and shows this latest move could also be successful.

However, with a third of its total sales in Europe, Brexit is a cause for concern for BrewDog. New tariffs could hurt the company’s earnings and could see it become too expensive for European supermarkets to sell. Yet Watt’s response is simple: “I might just go live in America”. Sales of high-end beers have seen growth in double digits over the past 3 years and now account for more than 24% of the US beer market (worth over $114 billion). Demand in the US however is slowing, with forecasts of 7% growth in 2018. This means that having a foothold in other developing craft beer markets will be essential, as well as maintaining BrewDog’s undeniable character. Shanghai, Kuala Lumpur and Brisbane are amongst BrewDog’s target, but will investors be convinced and charmed enough splash out in return for a few pints?

Report written by Will Holmes

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