The government has lent Kenya Airways Sh5 billion to sustain operations of the loss-making airline, which is expected to be nationalised.
The move increases the national carrier’s indebtedness to the government –its top shareholder with a 48.9 per cent stake.
The State in 2017 converted Sh16.8 billion worth of loans it had provided to the company into shares as part of the airline’s debt restructuring.
The government also holds another Sh7.7 billion worth of convertible debt.
KQ, as the carrier is known by its international code, said the new loan demonstrates the government’s commitment in ensuring it remains aloft. “The government through the National Treasury made a loan on commercial terms to KQ of Sh5 billion for the purpose of enabling it to (i) complete the scheduled engine overhaul programme of its E190 Embraer fleet and (ii) fund its working capital requirements,” the airline said in a statement.
The company also warned current and prospective investors that its proposed corporate restructuring, including nationalisation, could hurt the value of their holdings. “
The possible restructuring … once confirmed in greater detail, will have a material effect on the price of KQ’s securities. Accordingly, shareholders and investors are advised to exercise caution when dealing in KQ’s securities until a further announcement is made,” the airline said.
Among other terms, shareholders will be waiting to know the price the government will be offering to buy them out. Despite dropping to the current levels of Sh2.1, KQ’s share price represents a major premium given that the airline’s liabilities exceed its assets.
The firm reported a net loss of Sh8.5 billion in the half year ended June 2019, more than double the net loss of Sh4 billion the year before as costs rose faster than revenue. The loss saw the company’s negative equity widen to Sh16.1 billion from Sh2.4 billion, underlining the airline’s capital crisis.
Turnover in the review period rose to Sh58.5 billion from Sh52.1 billion, representing a 12.2 percent increase.
KQ’s problems have been linked to a mix of increased competition, corruption, mismanagement and a previous debt binge that continues to weigh on its balance sheet.
It is also looking at losses from the suspension of flights to China due to the coronavirus outbreak, with management putting the lost revenue at Sh800 million in the one month of flight stoppage.
The losses on the Nairobi-Guangzhou route include foregone passenger and cargo revenue.