Kenya Government Takes Control of Kenya Airways in Debt Swap

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Kenya’s government and domestic lenders agreed to convert $405.3 million of Kenya Airways Plc debt into equity, giving the state a controlling stake and diluting other shareholders including Air France-KLM.

The government, which has given Kenya Airways shilling and U.S.-dollar loans totaling $238.1 million, will increase its stake to 48.9 percent from 29.8 percent, according to statements published in the Nairobi-based Standard newspaper on Monday. Lenders owed $217.2 million will convert part of that debt into a 38.1 percent holding.

“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. He’s scheduled to address the media later on Monday morning.

Kenya Airways, in which Air France-KLM has a 26.7 percent stake, announced a $690-million reorganization last year aimed at returning the company to profit. The carrier posted a 26.2 billion-shilling ($253 million) loss in 2016 — the biggest in Kenyan corporate history. Since the plan was announced, the airline cut jobs, reduced the size of its fleet and canceled unprofitable routes.

In addition to the debt-for-equity swap, the government and Kenya Airways entered a convertible-loan agreement for a remaining portion of state loans that will result in the issue of more shares at a future date, according to the statement. A similar agreement was reached with banks, whose stake will be housed in a company known as KQ Lenders Co., for $50 million of outstanding debt.

KQ Lenders also has no plans to make a take-over offer for the airline, according to the statement.

Bloomberg