Govt to convert its Kenya Airways loans to equity in restructuring plan

The government has moved to convert its existing loans in Kenya Airways #ticker:KQ into equity as part of a capital restructuring plan.

Treasury has also announced that it will guarantee long-term loans totalling $750 million (Sh77.3 billion) that KQ owes Export-Import Bank of the United States of America ($525 million) and local lenders ($225 million).

These guarantees are being made in exchange for “material concessions”, includes extension of debt tenures, which will improve the airline’s repayment obligations.

The Kenyan government currently owns 29.8 per cent of KQ while KLM owns 26.7 of the loss-making airline.

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Parliament approval

Treasury secretary Henry Rotich is now expected to submit the Cabinet-approved plan to Parliament for approval, heralding a new phase in ongoing attempts to revive Kenya Airways.

“The Cabinet noted that to achieve the required turnaround, the company also requires a financial restructuring to reduce the overall debt burden and to extend the repayment period for its debt,” KQ said in a statement.

“This would stabilize the company and allow it to meet its obligations and facilitate long term growth. By so doing, it would also position the company to continue playing its crucial role in the economy.”

Cost-cutting interventions helped KQ cut its full-year net loss by more than a half to Sh10.2 billion.

The carrier’s net loss for the 12 months to March narrowed 60.9 per cent from last year’s Sh26.2 billion, offering some green shoots of hope for the loss-making carrier.

This airline’s book value, however, worsened by Sh9.2 billion to Sh44.9 billion in the red on years of losses and negative fluctuations on their mountain of foreign currency denominated loans.

Total liabilities

KQ closed the year with total liabilities of Sh191 billion to outstrip its total assets of Sh146.1 billion.

READ: KQ’s Sh10bn loss deepens shareholders capital erosion

“As a major shareholder, we are keen to secure the airlines future and ensure it has a healthy liquidity profile and remains operational,” Mr Rotich said in a statement Tuesday.

“The proposed restructuring of the airline will generate concessions from all stakeholders and the re-capitalisation of the business.”

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