Banks sue over bid to convert KQ debt billions into shares


A KQ’s plane at the Jomo Kenyatta International Airport in Nairobi. FILE PHOTO | NMG

Some of Kenya Airways’ #ticker:KQ lenders have moved to court to block orders that will compel them to accept the planned conversion of the billions of shillings the airline owes them into stakes in the ailing business.

KQ has proposed that the 11 banks and the Treasury convert outstanding and unsecured loans amounting to Sh23 billion and Sh27.2 billion respectively into equity, a plan that is expected to precipitate massive dilution of existing shareholders.

READ: Govt to convert its Kenya Airways loans to equity in restructuring plan

ALSO READ: Eleven banks get Sh23bn Kenya Airways shares in bailout plan

While shareholders voted to approve the financial restructuring plan at a special meeting yesterday, Kenya Airways said not all banks have agreed to the conversion and some have moved to court.

“The court has ordered there be confidentiality and there’s a gag order. So we can’t talk about the details,” KQ chairman Michael Joseph said.

“The court will rule on Thursday and hopefully it will rule in our favour. We believe we have done all the right things and we think we will see it through.”

People familiar with the transaction say Equity #ticker:EQTY, Jamii Bora and Ecobank are holding out against the debt conversion plan, arguing that they “were not consulted.”

The three are collectively owed Sh6.4 billion.

Several executives of the affected banks grumbled that, over and above further extending the life of the loans tied to customer deposits, they are being “forced to partner” and become owners of a company that may not have been in their radar in the first place.

A shareholder, Daniel Muchiri, had questioned the proposed debt deal, arguing the cash involved was depositors’ and not the banks’.

Other minority shareholders, whose stake will be diluted by 95 per cent, complained about wastage and integrity issues at the carrier, arguing that Kenya Airways was spending billions of shillings paying foreign consultants.

They hinged their claims on a 2016 leaked forensic report which linked KQ employees and third parties to the airline’s descent into financial troubles, either through negligence, abuse of power or theft.

Mr Joseph said the foreign consultants were sourced competitively and added managers mentioned in the report were fired, but are yet to be prosecuted.

“In order to take people to court we need a lot more than what we have and this will be an expensive long process,” he said.

“I am not saying we are over yet, there are still things to be done.” The lenders, through a special purpose vehicle called KQ Lenders Company Limited, will own 35.7 per cent of the airline which they will be allowed to divest over 10 years by selling in the open market or to a strategic investor. The financial restructuring plan is essential for the in airline to continue operating and return to profit, Mr Joseph said.

KQ owes Equity Bank Sh5.2b, National Bank #ticker:NBK (Sh3.5bn), Co-operative Bank #ticker:COOP (Sh3.3bn), CBA Group (Sh3.1bn), NIC Bank #ticker:NIC (Sh2.1bn), DTB  (Sh2.1bn) and KCB Group #ticker:KCB (Sh2.1bn).

I&M Bank #ticker:I&M and Ecobank are claiming Sh824 million each from the cash-strapped airline, while troubled Chase Bank and Jamii Bora are owed Sh721 million and Sh412 million respectively.

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