26 Jun

Kenya to convert $243M debt in Kenya Airways into equity

Kenya will convert its $243 million in loans to Kenya Airways into equity, the government has said, as part of a broader restructuring to nurse the ailing airline back to financial health.

The government owns a 29.8 percent stake while Air France KLM has a 26.73 percent stake in the airline, which slumped into the red five years ago following a downturn in tourism.

The airline has failed to record a pretax profit since then and the losses have compounded the huge debts the airline took on to buy a fleet of new Boeing planes, pushing it into negative equity territory.

The government has previously said it planned to convert its loans into equity but did not give an amount. The figure of $243 million was contained in a government paper submitted to parliament earlier this month seeking approval for the overall deal.

Kenya Airways warned in a statement on Thursday there was a risk of “significant” dilution of existing shareholders as it offers new equity in the restructuring exercise.

The airline has said the financial restructuring will help dig it out of its negative equity position and get a better balance between cash flow and debt repayments.

The restructuring is expected to reduce the airline’s debt to about $1.2 billion from above $2 billion, the government said in its submission to parliament.

The government is also seeking to guarantee $750 million worth of the company’s current debt with international and local lenders as part of the restructuring.

Some local creditors will convert some of their debt into equity too, a source at the airline said, without providing a figure of the amount.

The restructuring is conditional on all creditors and shareholders agreeing to it, the government said in the document submitted to parliament.

Read more: Kenya to convert $243M debt in Kenya Airways into equity