Govt to Convert KSh 4.2 Bn Kenya Airways Loans into Equity

Kenya Airways PLC seeks to raise an estimated KSh 77 Billion in the next step of capital restructuring plan to reduce the firm’s financial leverage and increased liquidity.According to a statement from the carrier, US Exim bank will finance Ksh 54 Billion while local Banks will advance Ksh 23 Billion.

Further, it says Kenya’s Cabinet has approved the conversion of the government’s KSh 4.2 billion to it as equity. “The support confirmed by the Cabinet included conversion of the Government of Kenya loans into equity and provision of contingent guarantees subject to parliamentary approval in exchange for material concessions to be provided as part of the financial restructuring, which would secure future funding of the company and would more importantly not require Government to provide cash as part of their restructuring.”

According to the Cabinet, Kenya Airways to achieve the required turnaround, it required a financial restructuring to reduce the overall debt burden on the Balance sheet and to extend the repayment period for its debt. “This would stabilise the company and facilitate long term growth.”

“As a major shareholder, we are keen to secure the airline’s future and ensure it has a healthy liquidity profile and remains operational. The proposed restructuring of the airline will generate concessions from all stakeholders and the recapitalisation of the business,” said the National Treasury Cabinet Secretary Henry Rotich.

Michael Joseph, Kenya Airways’ Chairman said, “The full support of the airline’s creditors, principal shareholders and other stakeholders will see this transaction, once it has completed, position Kenya Airways for a new era of sustainable growth via a deleveraged balance sheet and a healthy liquidity profile.”

The airline’s main shareholders are the Kenyan government, with 29 per cent; Air France-KLM (26 per cent), and the International Finance Corporation (9.7 per cent).

The carrier recorded an improvement in its loss per share to Kshs 6.8 from Kshs 17.5 in Financial Year 2016 results driven by a 12.4 percent decline in operating costs to Kshs 105.4 bn from Kshs 120.3 bn in FY’2016, despite a drop in top line revenue by 8.5 percent to Kshs 106.3 bn from Kshs 116.2 bn in FY’2016.

KQ made an operating profit of Kshs 897.0 mn but this was depleted by other costs that amounted to Kshs 11.1 bn.

The carrier has  continued its business turnaround strategy “Operation Pride”, which focuses on three key objectives: closing the profitability gap through revenue enhancement and cost containment, improving the business model and enhancing partnerships, and restructuring the capital of the company.