NAIROBI, Kenya, Mar 12 – National carrier Kenya Airways (KQ) has priced its rights issue, through which it targets to raise Sh20.68 billion at a discounted rate of Sh14 per share.
The airline is issuing an additional 1.47 billion ordinary shares on offer with shareholders entitled to purchase 16 new shares for every five held.
“The discount (on offer price) from the Volume Weighted Average Price of 90 days to February 29, 2012 is 32.2 percent and is fairly significant given that our share price has been trading at low levels. So we believe this will be very attractive both to institutions and individuals,” KQ Finance Director Alex Mbugua said while releasing the details of the transaction.
The company’s register will be closed on March 19 affording investors that would like to be allocated rights to participate in the transaction – which is the largest issue in Kenya yet – the opportunity to do so.
The rights issue will be launched on March 30 and will run through to April 27 while the new shares are expected to be officially listed on the Nairobi Securities Exchange (NSE) on June 12.
For the offer to be deemed successful, the airline is targeting to net at least Sh14.47 billion, which is 70 percent of the total amount and is confident that it will achieve this goal.
The optimism primarily stems from the fact that the two largest shareholders – the government with 23 percent stake and Air France – KLM holding 26 percent share have committed to take up their full entitlement rights which is equivalent to 49 percent of the full transaction.
This is notwithstanding the profit warning published in January 2012 stating that KQ expects to deliver lower earnings for the year ended March 2012 due to the challenging operating environment.
The tight liquidity in the market is also of little concern to the carrier which has managed to entice major financial institutions to subscribe to the issue.
The proceeds from the rights issue will be used to fund the Pre-Delivery Payments for ordered aircraft amounting to Sh8 billion ($96 million).
“When you buy an aeroplane, you have to pay a deposit two years before it is manufactured. That is called Pre-Delivery Payments and we start them in year one which is March 2012,” Mbugua explained adding that this would see them pay Sh4 billion ($48 million) annually over the next two years.
The Sh20.68 billion is part of a bigger share of Sh300 billion ($3.6 billion) that KQ requires to fund its aircraft financing requirements.
Some Sh182.6 billion ($2.2 billion) will be borrowed from banks to buy the planes while approximately Sh12.5 billion ($151 million) will be generated internally.
In its ambitious business plan, KQ plans to increase its fleet from the current 34 to 107 in the next 10 years which would enable them to effectively serve 115 destinations during the same period.
The first phase of the plan will see the airline acquire 68 aircraft by 2015/2016 with the rest of the fleet being delivered in the next five years. It also entails the phasing out of Embraer 170s and replacing them with Embraer 190s and the subsequent replacement of existing long haul aircraft with Dreamliners to help serve the long haul routes.
KQ’s expansion program mainly focuses on capturing the African and Far East markets where it believes it has a competitive advantage.
Particularly on the KQ’s radar are the Chinese and Indian routes where they hope to open up nine destinations and increase the frequencies.
“Currently, we are flying into two destinations in China and the plan we have is to open up another four routes; India we are doing one and we hope to increase that to six. In fact we are looking into launching daily flights in the next two to three months,” Group Chief Executive Officer Titus Naikuni disclosed.