Companies

KQ minority investors trapped as recovery plan takes new twist

kq

Kenya Airways planes at the Jomo Kenyatta International Airport on July 31, 2020. PHOTO | SALATON NJAU | NMG

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Summary

  • The company’s share price was first banned from trading in July last year as the government, which owns a controlling 48.9 percent stake, took steps to nationalise it.
  • Retail investors were to be bought out while banks that had converted their loans into shares were to be given State bonds to settle their residual claims.

Minority shareholders of Kenya Airways are trapped in the company whose shares have been suspended from trading for another year, with no clear path to how investors will be able to exit the troubled airline.

The company’s share price was first banned from trading in July last year as the government, which owns a controlling 48.9 percent stake, took steps to nationalise it.

Retail investors were to be bought out while banks that had converted their loans into shares were to be given State bonds to settle their residual claims.

It has since emerged that the government has dropped the nationalisation plan and will instead continue bailing out the company, prompting the Nairobi Securities Exchange to extend the stock’s suspension from trading.

“Notice is hereby given on the extension of suspension from trading of Kenya Airways Plc shares. The company’s operational and corporate restructure is still on going and the Government is expected to give a clear direction on its buy-out or bail-out,” the bourse operator said in a statement.

“The extension of suspension from trading the company’s shares will remain in force for an additional twelve (12) months, with effect from January 5th, 2022. All shareholders, investors and the general public are asked to take note of the suspension.”

KQ’s stock price had collapsed to Sh3.83 by the time it was first suspended, adding to the pain of small investors who lost part of their shares in the financial engineering that accompanied the conversion of the loans from the National Treasury and banks to equity in 2017.

An investor who held 100,000 shares, for instance, ended up with 25,000 units without compensation for the forfeited stocks.

The small investors were promised an exclusive right to participate in a subsequent rights issue at a discount but the plan to make up for their dilution has not materialised.

“The shareholders will be provided with the ability and opportunity to reinvest in the company, at an expected discount, and acquire further new ordinary shares via the open offer, post-restructuring,” the airline said at the time.

“In order to reduce further share dilution for shareholders, KLM, KQ Lenders Co. Ltd, the government, at the time of making the open offer will give undertakings waiving their rights of pre-emption and agreeing not to participate in the open offer.”