NAIROBI, Kenya, Jun 6 – The government is set to convert its Kenya Airways loan into equity that could see it increase its shareholding in the local carrier from the current 29.8 percent.
The government has also agreed to guarantee its debt owed to the Export-Import Bank of the United States and a consortium of local banks at Sh77 billion.
“Cabinet authorized the Cabinet Secretary to the National Treasury to seek, as required by law, the approval of the National Assembly for a contingent Guarantee of US$ 750 million to be provided by the Export-Import Bank of the United States and the participating local banks to the tune of US$525 million and US$225 million, respectively,” reads the cabinet memo.
The move is aimed at reducing the overall debt burden on the Balance Sheet and to extend the repayment period for its debt.
The guarantee would be in exchange for material concessions be provided as part of the financial restructuring which would secure future funding of the company and would more importantly not require Government to provide additional cash as part of the restructuring.
This is part of the firms’ financial strategy that is aimed at paying debt over a longer period.
During the 2017 financial results announcement last month, KQ Chairman Michael Joseph said the firm is focusing on financial restructuring and senior management improvements.
“We are working on increasing new staff at the senior management level to help with the turnaround. We are also planning to renegotiate our debt repayment with our finance partners so that we can pay our debt over a longer period,” said Joseph.
KQ cut their loss by 61 percent in 2017 to register a new loss of Sh10.2 billion compared to the Sh26 billion it recorded in 2016.
Cabinet says this intervention will stabilize the company and allow it to meet its obligations and facilitate long-term growth.
“Noting that the Government continues to support Kenya Airways as it is a valuable national strategic asset, the Cabinet urged the National Assembly to expedite the approval of the support proposed as it did not involve any cash bailout,” Cabinet argues.
Last month KQ appointed a turnaround CEO Sebastian Mikosz to take over from Mbuvi Ngunze.