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September 25, 2018

State, banks agree to turn KQ loans into equity

Passengers on-board KQ plane at Moi International airport Mombasa/Photo Elkana Jacob
Passengers on-board KQ plane at Moi International airport Mombasa/Photo Elkana Jacob

The Kenyan government has formally converted loans offered to Kenya Airways into shares, increasing its stake in the airline from 29.8 to 48.9 per cent.

The National Treasury offered Sh4.24 billion bailout to the national carrier in 2015 and a further $197 million in form of a bridging loan in 2016.

The formal signing witnessed by Treasury CS Henry Rotich, his Transport counterpart James Macharia and KQ board advisor and former KQ boss Mbuvi Ngunze yesterday sets the stage for a final restructuring by other lenders slated for Friday this week.

Speaking during the event, Treasury CS Henry Rotich said the airline has experienced serious economic challenges for the past four years characterised by massive losses that have drastically eroded its capital as well as cash reserves.

“The capital restructuring plan is primarily meant to reduce the inordinate level of indebtedness on the balance sheet and create a capital structure aligned to the company’s asset levels to enable KQ to trade on its own balance sheet going forward,’’ said Rotich.

He added that the preferred restructuring option that was adopted entailed a solvent consensual inter conditional restructuring, which ensured that all the relevant stakeholders of the company contribute to the restructuring to achieve a mutually beneficial outcome.

The restructuring will see 10 out of 11 lenders convert Sh17.32 billion ($167.2 million) loan into equity, acquiring 38.1 per cent stake in the airline. The plan will also see those lenders channel $50 million (Sh5 billion) into convertible loan.

The debt restructuring plan, that was first mooted in June, has been agreed following long negotiations which saw one bank, Jamii Bora, opt out of converting their loan, and instead choose to receive their dues over a five year period.

KLM, a KQ joint venture partner and shareholder, is perhaps the biggest loser in the restructuring plan that will see its shares shrink from the initial 26.7 per cent to a paltry 7.8 per cent.

Minority shareholders who include KQ employees will have a 5.2 per cent stake in the airline.

‘’The government has no intention in controlling the airline despite this massive investment. It is for this reason that we have made an application to CMA to be exempted from the takeover and merger rules,’’ said Rotich.

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