- The Treasury acquired an additional 19.1 percent stake after the State and domestic lenders agreed to convert debt into equity.
- KQ has failed to record a profit since 2014 and the losses have compounded the huge debts the airline took on to buy a fleet of new Boeing planes, pushing it into negative equity territory.
- The loss-making national carrier has over the years received billions of shillings in bailouts from the Treasury to help stay afloat and implement its turnaround strategy.
Parliament has questioned the Treasury’s decision to convert a Sh24 billion government debt held by Kenya Airways into equity, citing procedural flaws.
The National Assembly’s Public Accounts Committee (PAC) has summoned the Treasury Cabinet Secretary Ukur Yatani to shed light on the debt swap deal and how the State’s equity in KQ had been treated in government books.
The Treasury acquired an additional 19.1 percent stake after the State and domestic lenders agreed to convert debt into equity.
KQ has failed to record a profit since 2014 and the losses have compounded the huge debts the airline took on to buy a fleet of new Boeing planes, pushing it into negative equity territory.
The loss-making national carrier has over the years received billions of shillings in bailouts from the Treasury to help stay afloat and implement its turnaround strategy.
KQ chief executive Alan Kilavuka told the committee that the Cabinet approved the debt conversion in June 2017.
“Following the approval by the Cabinet and the extraordinary shareholders general meeting of August 7, 2017, held to approve the restructuring of the debt and equity in KQ, the Government of Kenya (GOK) converted the total debt/ loan to equity,” he said.
Mr Kilavuka said the government also received a mandatory convertible note that matures in 2027.
“This saw the government acquire a 48.9 percent stake in KQ. Therefore, there is no outstanding loan,” he said.
PAC chairman Opiyo Wandayi, however, put the KQ management on the spot to explain why the debt conversion had been excluded in the airline’s and the Treasury’s books of accounts.
“Why has this figure not been reflected in your books or the Treasury’s financial statements? Why has interest accrued on this loan not been disclosed?” he asked.
Mr Kilavuka tabled a letter from the Treasury dated June 30, 2017, addressed to former group managing director Sabastian Mikosz.
The letter signed by former Treasury PS Kamau Thugge suggests that the Clerk of the National Assembly had communicated the approval of the House for the government to guarantee $750 million (Sh75 billion) for the restructuring of the airline.
Dr Thugge informed KQ that the Cabinet in its meeting held on June 12, 2017 approved the conversion to equity of the government’s outstanding loans of $243 million (Sh24 billion) together with accrued interest under the consensual underconditional framework for the restructuring.
“Based on the Cabinet approval for the conversion of government debt to equity, we confirm that the government intends to vote in favour of the conversion of its debt to equity in any Kenyan Scheme of Arrangement procedure that may be necessary to effect the capital optimisation process,” Dr Thugge wrote.
The committee stood down the testimony of Mr Kilavuka pending summonses to the Treasury Cabinet Secretary Ukur Yatani, Treasury Principal Secretary Julius Muia, and Secretary to the Cabinet Joseph Kinyua.
The Treasury targets injecting cash into Kenya Airways and Kenya Power in the financial year starting July 2022, citing the role of the two struggling firms in supporting economic recovery from Covid knocks.
No bailout was allocated to the two firms in the current financial year, raising concerns their worsening cash flow positions could hurt operations and slow down recovery in economic activity.
Stakeholders, in recommendations in the Budget Review and Outlook Paper (BROP), last month faulted the Treasury for not outlining a recovery plan for the troubled firms.
They argued Kenya Power and Kenya Airways were key in “fuelling economic growth and the creation of employment” and should be supported through cash injection in the budget.
“This is duly noted and will be done during sector allocations,” the Treasury wrote in the final BROP report.