The State paid out Sh7.3 billion of guaranteed Kenya Airways (KQ) debt in three months to March 2023.
This brings cumulative taxpayer payments to the guaranteed loans to Sh10.1 billion, according to new Treasury disclosures, up from Sh2.8 billion as of the end of last December.
As part of the restructuring of KQ, the government in disclosures made to the IMF at the end of last year indicated it had begun servicing the guaranteed portion of KQ’s external debts.
The Treasury was expected to take over Sh66.45 billion ($485 million) of guaranteed KQ loans to facilitate better management of risk and avoid the potential call-up of the guarantee.
“The guarantees are already part of the government debt stock and, not likely to cause significant, other than an increase in the annual payment obligation from the Consolidated Fund Services estimated at Sh10 billion per year,” the Treasury told the IMF.
The government has already settled outstanding debt service arrears on the guaranteed loan at the end of last September with further payments scheduled in the supplementary budget running to June.
The payments by the government on behalf of KQ are shareholder loans.
In February this year, Treasury PS Chris Kiptoo told Parliament that the US Export-Import Bank handed a default notice to the authorities after the delayed payment of the guaranteed loan.
KQ defaulted on part of its Sh71.9 billion ($525 million) loan from the Private Export Funding Corporation, which was guaranteed by the US Exim Bank first, and secondly by the government of Kenya forcing the Treasury’s hand in taking over the payments in a process known as a debt novation.
“We have an outstanding balance of Sh63.29 billion ($462 million). A default notice has been issued by the guaranteed lender, which is US Exim Bank, which has called on the government of Kenya to pay. Now we don’t have, to say the truth, enough headroom to pay, but what is important is to pay,” Dr Kiptoo told the committee on Public Debt and Privatisation.
The novated KQ loan is a 12-year facility initially provided by Citi Bank and JP Morgan before its transfer to Private Export Funding Corporation with the US Exim Bank and government as guarantors.
The debt novation is part of a wider restructure of the beleaguered airline which seeks to support the carrier at the least cost to the exchequer.
The plan involves additional capital injection by the government, cost cuts, network optimization and the development of key performance indicators for KQ senior executives including its CEO.
“KQ and the government continue to act resolutely to minimize cash burn while the restructuring process takes place,” the National Treasury had stated in additional correspondence to the IMF.
