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Eleven local banks are set to be the second largest shareholders of national carrier Kenya Airways after forming a special purpose vehicle to acquire shares in the airline.

As part of a bold restructuring plan, the banks will convert part of loans issued to Kenya Airways to acquire a 38.1% stake, citizen.co.ke reports.

This follows a deal proposed by the airline that will see the banks convert Ksh 17.3 billion (US$167.24 million) of the Ksh 22.5 billion (US$217.2 million) in loans issued to the airline.

 The shares will be owned by a new special purpose vehicle called KQ Lenders Company managed by Minerva Fiduciary Services from Mauritius.

The local banks in the debt conversion deal include KCB Group, Commercial Bank of Africa, Co-operative Bank and Equity.

Other banks include I&M Bank, Jamii Bora, NIC Bank, Ecobank, National Bank, Diamond Trust Bank and Chase Bank.

As part of the deal the banks will sign a new loan agreement for the outstanding loan amount of $50 million to acquire more shares in future.

“The effect of the mandatorily convertible loan agreement is the issuance of ordinary shares to the KQ Lenders Co at a future date in accordance with terms of the agreement,” Kenya Airways said in notice in the dailies.

 Kenya Airways has been under huge financial strain over the years, reporting losses for five consecutive years.

The airline shrunk is full year to March loss by 60% to Ksh 10.2 billion with the debt restructuring plan expected to give it financial headroom to bounce back.

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The government will also acquire an additional 19.1% shareholding in Kenya Airways, pushing its total shareholding to 48.9% as part of restructuring of government loans advanced to the airline.

 “The government of Kenya shall acquire effective control in Kenya Airways and it shall make an application to the Capital Markets Authority for exemption from the take-over requirements in compliance with the Take-overs regulations,” Treasury Secretary Henry Rotich said in a notice in the press.

The National Treasury had issued two loans to Kenya Airways worth Sh4.2 billion and Ksh 20.4 billion (US$197.2 million) respectively.

Rotich and Transport Cabinet Secretary James Macharia is set to issue further details of the deal.

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