National carrier Kenya Airways #ticker:KQ gained Sh64.5 billion in market capitalisation in the three days since its return to the Nairobi bourse last Wednesday, indicating investor enthusiasm for the company that only managed to stay aloft after a major bailout.
The 9.1 times rise in paper value – one of the biggest short-term rallies ever seen on the Nairobi Securities Exchange — defied what would normally have been a dilutive effect of a 4.3 billion increase in ordinary shares.
KQ, as the airline is popularly known, previously traded on November 14 when its share price closed at Sh5.3, giving it a market capitalisation of Sh7.9 billion.
The stock was suspended on November 15 to allow for a series of capital restructuring decisions that had the net effect of increasing the total issued shares from 1.49 billion to 5.82 billion.
On the enlarged share base, investors bid up the stock from lows of Sh2.1 on Wednesday to close at Sh12.45 on Friday, assigning the airline a market value of Sh72.5 billion.
The entry of 10 banks, including KCB #ticker:KCB, Equity #ticker:EQTY and NIC #ticker:NIC, on the airline’s shareholder register was one of the major reasons for the increase in the number of shares.
The lenders, who now own 38.1 per cent of KQ or 2.2 billion shares, converted their Sh22 billion loans into stock at a price of Sh2.13 apiece after the airline defaulted on the debt.
KQ’s share price rally has, on paper, seen the banks recoup their money and plenty more. Their stake, valued at Sh27.6 billion on Friday, represents a capital gain of more than Sh5 billion.
The shares held by the lenders are, however, unlikely to be offloaded in the open market in a short period without sinking the stock.
Retail investors who held shares as the airline went into the capital restructuring exercise are, however, still under water by 41 per cent despite the stock’s appreciation.
This is because they were diluted 95 per cent in a confiscatory process that saw an investor’s original holding of 1,000 shares drop by a factor of four to 250 units.
The small investors will be required to pay up an aggregate of Sh1.5 billion in an upcoming share offer to minimise their dilution. For banks, their exit from KQ is likely to involve share sales to airlines, pension funds or private equity firms but these institutional investors are expected to wait for KQ’s recovery before jumping in.
The national carrier says the restructuring plan has pulled it from a negative net worth of Sh45 billion to a positive book value of Sh12 billion.
This translates into a net asset value per share of about Sh2 or 16 per cent of what KQ traded at on Friday. Dutch carrier KLM is set to be allotted additional shares running into hundreds of millions, which will further change KQ’s capital structure.