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Kenya assures national airline’s ‘smooth’ recovery

Government move will help lossmaking airline raise additional capital for recovery

NAIROBI – The Kenyan government will offer Kenya Airways’ creditors $750m in guarantees to help the heavily-indebted and lossmaking airline raise additional capital to continue its recovery, official documents have revealed.

The Ks24.56bn ($238m) the government has lent the company since 2014 will be converted into equity, government officials said.

The guarantees, which are subject to parliamentary approval, will cover $525m owed to the US ExIm Bank and $225m borrowed from local lenders, according to a cabinet document seen by the Financial Times.

The Kenyan government owns 29.8 per cent of the airline. It is not clear how many shares its debt will be converted into, when the conversion will happen or how much other shareholders will be diluted. Air France-KLM owns 26.7 per cent and the International Finance Corporation, the investment arm of the World Bank, 9.6 per cent.

Henry Rotich, finance minister, said in a statement released by the airline that the cabinet made the decision because it wanted “to support Kenya Airways as it is a valuable national strategic asset”.

“We are keen to secure the airline’s future and ensure it has a healthy liquidity profile and remains operational,” he said, adding that the proposed restructuring “will generate concessions from all stakeholders”.

Aly-Khan Satchu, a Nairobi-based investment adviser, said the government guarantee “is a big statement because they’ve been reluctant to give these guarantees in recent years”.

“But if the government wants Kenya to remain the regional transport hub the decision was a sine qua non,” he said. “They had to act decisively to ensure the recovery actually happens. The big question will be around the dilution and how much existing shareholders will be affected.”

Kenya Airways announced last month that it cut its pre-tax losses for the year to March 2017 to Ks10.2bn from Ks26.1bn the previous year.

However, it recorded an operational profit for the first time in five years, of Ks897m, on the back of cost cutting, flying a record 4.5m passengers and improving the average occupancy of each aircraft from 68 per cent to 72 per cent.

Its negative equity remains Ks44.9bn and its share price is 95 per cent off the high it reached in 2006.

Michael Joseph, the airline’s chairman, said when announcing the results that the full restructuring would be unveiled within two months. It will focus on extending the maturity of the debt, its repayment terms and improving the equity position, he said.

As part of the restructuring, Sebastian Mikosz, who oversaw the turnround of Polish flag-carrier Lot Airlines, replaced Mbuvi Ngunze as chief executive on June 1.

Kenya Airways’ troubles stem from an ambitious expansion that began in 2012 but hit turbulence the following year after the terrorist attack on Nairobi’s Westgate shopping centre and the Ebola outbreak in west Africa.

– Alleastafrica and agencies 

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