Nairobi, Kenya - The Treasury and 10 Kenya local banks will control 87 per cent of Kenya Airways (KQ) under the national carrier’s debt restructuring plan which will see them convert loans of Sh44.2 billion to equity.
The government’s stake under the plan will rise to 48.9 per cent from 29.8 per cent, while the banks’ stake will stand at 38.1 per cent, acquired under a special purpose vehicle known as KQ Lenders Co.
Both say in notices posted Monday that they have also applied to the Capital markets Authority (CMA) for exemption from a requirement to make a takeover offer for the airline, on the grounds that the restructuring is on the basis of rescuing a firm in financial distress in the interest of the public.
“KQ Lenders Co will be issued with new shares in KQ equivalent to 38.1 per cent of the ordinary voting shares in the capital of KQ in consideration for conversion of a portion of the debt being equivalent to $167.24 million (Sh17.2 billion),” reads the notices in part.
“The effect of the debt conversion (by the government of Kenya) is the acquisition of an additional 19.1 per cent of the ordinary voting shares of KQ resulting in the increase of the government’s shareholding from 29.8 per cent to 48.9 per cent.”
Huge impact on economy
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 choosing to receive their dues over a five year period.
KQ's creditors (Sh bn)
The Treasury came up with the plan to save KQ from collapse due to the huge negative impact this would have on the economy, affecting the transport, logistics and tourism sectors which depend on the airline.
A KQ collapse would also cost the economy thousands of jobs, and affect Kenya’s ability to attract investment given that Nairobi’s ease of connection to global cities has been cited as one of the reasons companies base their regional offices in the country.
Banks would suffer immensely as they would have to write off billions of shillings in bad loans and also lose out on other trading income they receive from the airline.