Good news for Kenya Airways as debt is set to be swapped for equity


(Posted 09th June 2017)

News are emerging from Nairobi that the Kenyan government, already intent to convert loans worth 23 billion Kenya Shillings extended to national airline Kenya Airways into equity, may now have brought local banks on board too.
It is understood that the major lenders among Kenya’s leading banks have agreed to also convert their combined debt of over 23 billion Kenya Shillings into equity.
Under the deal will the banks be able to sell their stock on the open market when the share value rises in the future, as the airline expects to return to full profitability over the next two years and with a reduced debt servicing burden another major expenditure item will contribute towards that effort.

When the proposal is put to the airline’s shareholders will most likely small investors see their holdings diverted but it is yet to be seen if the second largest investor, KLM / Air France, will inject more capital to retain their shareholding percentage and subsequent benefits like seats on the board of directors.

The Kenyan government owns just under 30 percent of the airline’s shares while KLM / Air France’s holding stands just under 27 percent at present.

Once the deal is done will the banks become the third largest shareholder in the national airline, no doubt also then insisting to have one or two representatives on the board of directors to sweeten the deal, which according to one usually well informed source did not meet with universal enthusiasm among top bank executives.