Kenya Airways has reneged on a promise to minority shareholders to issue them with new stakes at a discount as compensation for ownership cut they suffered during the airline’s 2017 restructuring.
Small investors lost 75 per cent of the shares they held in the company in the financial engineering that accompanied the conversion of $587.6 million (Sh69.6 billion) loans from the National Treasury, KLM and banks to equity.
Their holdings were cut by four to allow the airline to issue more shares to the larger shareholders without breaching laws prohibiting firms from allotting new stocks below their nominal value.
The shares of KQ, as the carrier is known by its international code, had a nominal value of Sh5 at the time when the institutional investors were to be issued new shares at a price of Sh2.13 each.
The company solved the problem by first splitting its shares and cancelling three-quarters of the stock, a move that saw the stock’s nominal value drop to Sh1.
Small investors were the only ones to suffer from the cancellation of the shares as the government, banks and KLM were subsequently issued 28.4 billion shares to settle their loans.
An investor who held 10,000 shares, for instance, saw his ownership shrink to 2,500 shares. KQ had promised to implement a Sh1.5 billion rights issue exclusively for minority investors at a discount by March 2019 to mitigate their 95 per cent dilution but this has not materialised.
When asked whether the airline will honour the rights issue, the company only reiterated the facts of the debt-to-equity swap.
“KQ undertook a restructuring exercise in 2017 where each share of par value Sh5 was split into one interim share of par value Sh0.25 and 19 deferred shares of par value Sh0.25,” the company said.
“The interim shares were consolidated in the ratio of four interim shares of par value Sh0.25 to one ordinary share of par value Sh1 and simultaneously, the deferred shares were cancelled. This is the reason for what is seen as a reduction in the shares.”
The restructuring left the government as the biggest shareholder with a 48.9 per cent stake while a consortium of local lenders acquired 38 percent. Air France-KLM, KQ’s long-time partner was left with 7.8 per cent from 26.7 per cent while the minority shareholders, were left with about two percent of the shares.
KQ’s employee stock ownership plan (Esop), in which workers were to be issued with up to 568.6 million shares, also remains in abeyance.
The broken promises to staff and minority investors have been worsened by the suspension of the firm’s shares from the Nairobi Securities Exchange (NSE) amid a government flip-flop on the strategies for turning the airline around.
KQ shares were initially suspended in July 2020 after MPs began to review the law that will pave the way for the government to take back full control of the airline. The suspension was this year extended for an additional 12 months, with effect from January 5, 2022.