Kenya Airways has moved to court seeking to protect its restructuring plan, which is facing resistance from lenders the national carrier owes billions of shillings.
The airline is seeking to activate a clause in the Companies Act that allows distressed companies to make “compromise” financial arrangements with the same class of creditors if 75% of them approve of the proposal.
Equity Bank, Ecobank and Jamii Bora are reportedly opposed to the debt-to-equity swap.
The carrier is now seeking the court’s consent to convene a creditor’s meeting to pass the proposed restructuring plan ahead of its presentation to shareholders for approval at an extraordinary general meeting on August 7.
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.
The lenders, through a special purpose vehicle called KQ Lenders Company Limited, will own a 35.7% 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 petitioner (KQ) desires to convene a statutory meeting with the scheme creditors for purposes of having them consider and vote on the scheme,” the petition papers say.
KQ owes Equity Bank Sh5.2 billion, National Bank Sh3.5 billion, Co-operative Bank Sh3.3 billion, CBA Group Sh3.1 billion, NIC Bank Sh2.1 billion, Diamond Trust Bank Sh2.1 billion and KCB Group Sh2.1 billion.
I&M Bank 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.
The earliest maturing of these short-term facilities, which KQ borrowed to meet its short-term obligations including paying salaries, became payable on October 26, 2016 while the oldest has a maturity date of January 31, 2017.
In an article published by Business Daily, KQ says in its petition that eight of the 11 banks and the Treasury — which hold 87 per cent (or Sh43.7 billion) of the Sh50.2 billion unsecured debt — have “agreed to the scheme.”
If KQ gets a court approval, three banks opposed to the debt-to-equity proposals will be forced to follow their consenting peers and the Treasury as they will be deemed to have opted for the shares plus bond option “by default”.
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The latest push to save the national carrier became public a couple of weeks ago when the Treasury said it would be guaranteeing Sh77.3 billion in local and international debt in exchange for a number of concessions.
In a statement yesterday, KQ said it had indicated that part of its financial and capital optimisation plan announced on July 16 may require a legal process allowed for under the Companies Act to implement the restructuring arrangements covering the Kenyan bank debt and the Government of Kenya debt.
“This is called a Scheme and is a statutory process which binds the unsecured financial creditors together. The High Court of Kenya has ordered that all proceedings in relation to the Scheme be handled as confidential and that there be no press coverage of any kind in relation to the proceedings.
“In that regard, and in compliance with the High Court’s orders, Kenya Airways regrets it is unable to disclose any information as this stage relating to the court proceedings,” the airline said in response to inquiries made regarding the process.