Treasury seeks more stake in KQ after Sh20bn bailout

The Treasury is mulling acquiring additional stake in Kenya Airways through the conversion of the Sh20.2 billion debt to equity in a bailout that has been questioned by Parliament.

Treasury secretary Henry Rotich told Parliament that talks are on to consider converting the debt to equity to ease the national carrier’s debt burden.

The Treasury have financed the Sh20 billion bailout package using a loan from African Export-Import Bank (Afrexim) for onward lending to KQ.

But MPS have questioned the bailout, has asked the Treasury to present to Parliament a sessional paper on loan for the legislators to debate, scrutinise and approve the debt.

Taking the loan through the Treasury allows KQ enough room to craft a payment plan that does not pile pressure on its balance sheet, which is already heavy with debt and has forced the airline to sell some of its assets.

“Since the airline needs equity injection, there were considerations to change the borrowing into government equity in the company since the government is a shareholder,” Mr Rotich is quoted in the mini-budget report tabled in Parliament on Tuesday.

This is the largest financial intervention the government, which has a 29 per cent stake in KQ, has ever made in a firm.

Converting its debts to equity look set to cement the government ownership of the troubled carrier. Air France-KLM has a 27 per cent stake in KQ.

The government has questioned the business plan of Dutch airline KLM, arguing the relationship is heavily tilted in favour of KLM. Mr Rotich has previously stated the government would review the partnership with KLM without offering any details.

READ: KQ gets Sh20bn bailout cash from mini budget

The Treasury says it had opted to bear the debt burden on behalf of the airline in order to monitor the ongoing restructuring.

But Parliament is not happy. “It was noted the Kenya Airways did not deserve such a bailout,” said the National Assembly Liaison Committee — which reviews and approves budget documents prepared by the Treasury.

“Why did the government agree to lend such a colossal amount without the approval of Parliament? posed the Committee on Finance and Trade.

The national carrier shocked the market with a record Sh25.7 billion after-tax loss in the year ended last March, prompting MPs to call for an investigation into its operations.

The debt plan spares KQ the pain of taking in more expensive commercial loans that would put a strain on its cash flows but exposes the taxpayers to taking in the entire debt in the event of a default.

KQ’s borrowings stood at Sh52 billion at the end of September, translating to a Sh3.4 billion financing cost burden.

The firm’s management has admitted it is significantly supported by creditors and is looking at avenues of replacing short-term debt with long-term maturities.

KQ has rolled out a turnaround strategy focusing on return to profitability, revising its business model to regain a competitive edge, and finding a sustainable financial structure.

Last month, KQ sold its prime landing slot at London’s Heathrow Airport in a deal estimated to be worth Sh3.7 billion.

The airline has also sold a 30-acre piece of land in Embakasi, Nairobi valued at over Sh2 billion as part of the recovery plan.