NAIROBI, Kenya, Nov 13 – The government is set to take over effective control of the national carrier Kenya Airways by raising its stake to 48 percent of the ordinary shares in the airlines as its capital optimization plan takes effect.
This is through the conversion of its loans to KQ amounting to Sh24 billion (excluding interest accrued) and sovereign contingent guarantees worth Sh77 billion to 19 percent of the ordinary shares resulting in the increase of the government shareholding from the current 29 percent to 48 percent of the ordinary shares.
“In addition to acquisition of equity under the debt conversion and subscription agreement, the government and KQ have entered into a zero coupon ordinary mandatorily convertible loan agreement in relation to settlement of the remaining portion of the government loans. The effect of the zero coupon ordinary mandatorily loan convertible loan agreement is the issuance of ordinary shares to the government at a future date,” Treasury Cabinet Secretary.
However the government does not intend to make a takeover offer of the struggling airline.
Moreover, the KQ Lenders Company that compromises of 11 banks will also take over 38.1 percent stake in the company through the conversion of their Sh17.3 billion debts to equity.
“In addition to the acquisition of equity under the debt conversion and subscription agreement, KQ Lenders and KQ have entered into a mandatory convertible loan agreement for the remainder of the debt being equivalent of Sh5 billion. The effect of the mandatory loan convertible loan agreement is the issuance of ordinary shares to the government at a future date,” KQ lenders said.
The move is part restructuring the firm that aims to clear Sh230 billion in four years.
The airline is set to offer shareholders rights issues by end of the year in a move that will see shareholders re-invest in the airline after the restructuring plan takes root.
“The Banks can hold equity up to 10 years, but they are also free to sell equity during this period,” KQ former Chief Executive who is now the advisor of the board Mbuvi Ngunze told Capital FM Business in July 2017.
KQ cut their loss by 61 percent in 2017 to register a net loss of Sh10.2 billion compared to the Sh26 billion it recorded in 2016.
In May KQ appointed a turnaround CEO Sebastian Mikosz to take over from Mbuvi Ngunze who hired Polish expatriates as part of the airline’s management team in its efforts to return to profitability.