Kenya Airways debt-equity swap shakes up shareholding


By Maryann Gicobi | The East African November 14, 2017
Kenya Airways plane.
Getty Images

Royal Dutch Airlines, KLM, is the biggest loser in the just concluded Kenya Airways debt swap deal that will see the airline majorly owned by the Kenya government and banks.

In a media briefing in Nairobi on Monday, Treasury Cabinet Secretary Henry Rotich said that in the new shareholding structure after converting KQ’s loans of Ksh44.2 billion ($442 million) to equity, KLM will have a 7.8 per cent stake, down from 26.7 per cent, whereas the government’s stake will rise to 48.9 per cent from 29.8 per cent. The banks’ stake will stand at 38.1 per cent, acquired through KQ Lenders Co.

“Government loans to KQ were huge and when they were converted to equity, they ended up diluting KLM’s equity. The government will have three members on the board while the banks are going to bring in two members and KLM one,” said the CS.

In notices posted on the dailies on Monday, the two had applied to the Capital markets Authority for exemption from a requirement to make a takeover offer for the airline, on the grounds that the restructuring was meant to rescue a firm in financial distress in the interest of the public.

Mr Rotich said the decision to support KQ’s capital restructuring was informed by a study commissioned by the government to determine whether there was a business case for a restructured KQ.

“We had to assure Kenyans that there was a business case to support the airline and apart from our own determination, the independent third party review from United States, which has been rebuilt many airlines that have had challenges, gave us confidence that there was a strong case for us to intervene,” said Mr Rotich.

“The airline is expected that with the operational restructuring, they will continue to refine their strategic direction to ensure that the problems that brought down the airline will never occur again.”

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.

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.

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