The Government is set to tighten its grip as the principal shareholder in Kenya Airways (KQ) as it moves to convert its debt into equity.
The airline confirmed yesterday the move that aims to rescue it from the current over $1 billion (Sh103 billion) debt position will also see the Government offer $750 million (Sh77 billion) in guarantees to the airline’s other existing creditor.
Government did not immediately disclose the amount being converted into equity even though sources at the National Treasury put it at Sh24.5 billion.
Part of the guarantee is $525 million (Sh54.2 billion) to Afrexim Bank and $225 million (Sh23.2 billion) to local lenders, including Sh6.6 billion owed to Barclays Bank that is set to mature this year.
“The proposed restructuring of the airline will generate concessions from all stakeholders and the re-capitalisation of the business,” said National Treasury Cabinet Secretary Henry Rotich.
The move means there will be financial restructuring to reduce the overall debt burden on KQ’s balance sheet and extend the repayment period.
It will also cement the Government’s position as the major shareholder in the loss-making airline. With the current stake of 29.8 per cent, Mr Rotich ruled out the possibility of the deal increasing Government’s stake in terms of percentage.
“As a major shareholder, we are keen to secure the airline’s future and ensure it has a healthy liquidity profile and remains operational,” said the CS. However, Head of Research and Business Development at Sterling Capital Limited Erick Munywoki said the deal would be accompanied with change in shareholding structure.
“The conversation will dilute other shareholders since there will creation of new shares to increase Government shareholding in the company,” said Mr Munyoki.
The airline’s Chairman Michael Joseph, who has set his eyes on reducing debt position of the company and improve its liquidity position when he took over late last year, said the nod from Treasury would put the firm on a growth trajectory.