Banks vote on conversion to shares of Sh50.2bn KQ debt

Eleven local banks and the Treasury are Thursday morning expected to vote on the proposed conversion of their combined Sh50.2 billion Kenya Airways #ticker:KQ debt into shares, marking a critical stage that could make or break the airline’s recovery plan.

KQ, as the airline is popularly known, will be seeking to get an affirmative vote from the creditors, who hold at least 75 per cent of the unsecured debt or Sh37.65 billion.

If this threshold is met, the airline will file results of the vote with the High Court for approval as per the Companies Act. Such a result will effectively force Equity Bank #ticker:EQTY, Jamii Bora Bank and Ecobank — the three banks opposed to the plan and are collectively owed Shh6.4 billion or just 13 per cent of the outstanding debt — to toe the line.

“The scheme meeting takes place Thursday. The banks and the Treasury, or their proxies, will each cast their vote according to their share of the total unsecured debt,” a person close to the transaction told the Business Daily.

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KQ owes Equity Sh5.2 billion, National Bank #ticker:NBK (Sh3.5 billion), Co-operative Bank #ticker:COOP (Sh3.3 billion), CBA (Sh3.1 billion), and Sh2.1 billion each to NIC Bank #ticker:NIC , DTB #ticker:DTBK and KCB Group #ticker:KCB.

I&M Bank #ticker:I&M and Ecobank are claiming Sh824 million each from the cash-strapped airline while Chase Bank and Jamii Bora are owed Sh721 million and Sh412 million respectively.

The carrier last week went to court seeking to activate a clause in the Companies Act that allows distressed firms to enter into financial “compromise” arrangements with the same class of creditors if three quarters approve. KQ, through its lawyers Coulson Harney, argued that this balance sheet restructuring is its single play to stay afloat and must be allowed to proceed.

The law states that if the vote threshold is met, a distressed firm and its agreeable creditors can proceed to implement the proposed arrangement, leading the dissenting minority down the rabbit hole.

KQ in its petition last week said eight of the 11 banks and the Treasury — who are collectively owed 87 per cent (or Sh43.7 billion) of the Sh50.2 billion unsecured debt — have “agreed to vote in favour of the scheme.”

The airline has now received the High Court’s green light to hold the meeting, after an application by Equity seeking to block the meeting and resultant debt to equity swap flopped.

“The results of the vote will be recorded and submitted to the court at a sanction hearing. If the court is satisfied that the results have met the thresholds set in law, it is expected they will sanction the arrangement,” the source said.

Several executives of the affected banks grumbled that, over and above further extending the life of the loans, they are being “forced to partner” and become owners of a company which may not have been in their radar in the first place.

The airline has scheduled an extraordinary general meeting for Monday where its shareholders will be requested to, among other things, vote in favour of the restructuring plan, which captures the debt-to-equity swap.