House team throws Treasury’s Sh77bn KQ loan plan in limbo

National carrier Kenya Airways’ quest to have Parliament approve a Sh77.3 billion ($750 million) loan guarantee the Treasury has granted it was Wednesday left hanging in the balance after a House committee failed to agree on its legality.
The National Assembly’s Finance, Trade and Planning committee said it could not ask Parliament to authorize the deal until the legality of using leased assets (planes) to guarantee debts the airline owes foreign and local banks is determined.

MPs were still locked in a closed-door meeting with Treasury officials by the time we went to press.

KQ, as the airline is popularly known, is seeking the Treasury’s guarantee for long-term loans it obtained from Export-Import Bank of the United States of America ($525 million) and local lenders ($225 million).

The Treasury and Kenya Airways management had rushed to Parliament Wednesday evening to defend the guarantee, saying the loan is backed by KQ assets (aeroplanes).

“These are the planes we acquired using funds from US Exim Bank. These are not leased aircraft, but assets we duly own,” Mbuvi Ngunze, the former KQ chief executive, told MPs. He identified Boeing 747s and Boeing 777s as aircraft KQ is using to secure the loan from US Exim Bank.

Mr Ngunze said the airline has never defaulted on its loans and that the national carrier pays its debt to different financers on a monthly and quarterly basis.

“We are today generating cash flows. We have been liquidating non-core assets through the sale of planes and land and have not defaulted on any payments so far,” Mr Ngunze, who now advises the KQ board, said.

Esther Koimett, the Investment Secretary, told the MPs that converting government debts and local bank loans into equity would improve the profile of KQ on payment of the loans over the next five years.

“Operation restructuring is beginning to show positive results and this will put the company en-route to relying on its cash flows,” she said. The committee was responding to the Treasury’s request for Parliament’s approval of the government guarantee.

The Treasury hoped that MPs would approve the sessional paper before it adjourns sine die (indefinitely) this afternoon to pave the way for the August 8 General Election, but the MPs’ resistance risked stalling the process.

Treasury secretary Henry Rotich said the guarantee is an instrument to facilitate KQ to attract a loan at a reasonably cheaper price.

“We have secured public concerns about this. We have ensured the guarantee is done in a manner that doesn’t undermine public good,” he said, adding that the Treasury had complied with all legal requirements in an attempt to rescue the national airline.

Government guarantees to KQ are being made in exchange for “material concessions”, including extension of debt tenures, which will improve the airline’s debt servicing obligations.

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

The committee, chaired by Ainamoi MP Benjamin Lang’at had at an earlier meeting with the Parliamentary Budget Office demanded that the Treasury and KQ management be recalled to provide certain documents, including the agreement Treasury entered into with KQ, repayment plans and business model.

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