Kenya Airways will not scale down debt plan, says director

Kenya Airways has said that it will not scale down its massive borrowing plan despite the under-subscription of its rights issue which recorded a 70 per cent uptake level.

The national carrier managed to raise Sh14.5 billion against a target of Sh20.6 billion in the share sale whose results were made public on Friday.

The rights issue was meant to raise additional capital for financing KQ’s expansion plans, as well as address its debt-capital ratios.
The airline’s group finance director, Alex Mbugua, however, said borrowing projections will not be scaled back since the rights issue had hit the 70 per cent target, which will allow a “comfortable” debt to equity mix.

“We wanted to get a mix to optimise the balance sheet which we have been able to do,” said Mr Mbugua.

KQ plans to borrow Sh185 billion over the next five years to increase its fleet by 68 jets. The additional aircraft is intended to help the airline’s expansion to 60 new routes over the next 10 years.

Eric Musau, a research analyst at Standard Investment Bank, said the projected level of borrowing could point to lesser dividends for KQ shareholders, as the airline seeks to retain earnings to balance its debt and equity.

“Potentially, KQ could continue with its conservative dividend policy,” said Mr Musau.

KQ paid out at a Sh1.50 per share dividend out of earnings per share of Sh7.65 for the year ended March 31 2011.

Mr Musau said that the shareholders can, however, reap in the long-run if what would have been paid in dividends is ploughed back to finance growth of the business.

The firm’s shareholding structure is also in favour of long-term investors after retail investors opted out, leaving a majority of the shares in a few hands.

The government emerged the biggest shareholder of the airline with a 29.8 per cent shareholding after the rights issue.
KLM has 26.73 per cent ownership and the International Finance Corporation has a 7.4 per cent stake.

Mr Mbugua, however, said that the firm “would not adopt a conservative dividend policy.”

The new KQ shares will begin to trading at the Nairobi Securities Exchange on June 21.