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Kenya Airways 8 local banks pump $40 million additional loans into Kenya Airways despite the airline's bad credit record

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Kenya airways defaulted on the lenders’ initial loan of Sh16.7 billion and instead issued them with shares amounting to a 38.1 per cent stake as a compromise settlement.

play Kenya Airways. (africa.cgtn)

 

  • Equity, KCB, Commercial Bank of Africa, I&M, National Bank of Kenya, Diamond Trust Bank , NIC Bank and Ecobank have advanced Kenya Airways the Sh4.3 billion.
  • The new loans come with an average interest rate of 7.2 per cent, significantly below the risk-free rate of 10.9 per cent on one-year T-bills.
  • Kenya airways defaulted on the lenders’ initial loan of Sh16.7 billion and instead issued them with shares amounting to a 38.1 per cent stake as a compromise settlement.

Eight local banks have pumped additional loans amounting to Sh4.3 billion into Kenya’s national carrier despite the airline defaulting on an earlier loan.

Equity, KCB, Commercial Bank of Africa, I&M, National Bank of Kenya, Diamond Trust Bank , NIC Bank and Ecobank have advanced Kenya Airways the Sh4.3 billion as part of the ongoing capital restructuring at the airline.

“The same banks with the exception of Chase Bank (Kenya) Limited and Jamii Bora Bank Limited gave a new term loan to the company amounting to Sh4.3 billion,” the airline said.

play KCB bank. (Dhahabu)

 

The new debt is backed by government guarantees therefore protecting the lenders from the national carrier’s default will go towards refurbishment of aircraft engines and general business operations.

Besides the local banks, the African Export-Import Bank (Afrexim) of the United States also secured government guarantees for the loans it is advancing to KQ including for purchase of 10 Embraer E190 aircraft.

Kenya airways defaulted on the lenders’ initial loan of Sh16.7 billion and instead issued them with shares amounting to a 38.1 per cent stake as a compromise settlement.

play KQ CEO Sebastian Makosz with Board Chair Michael Joseph on the background. (urbwise.)

 

According to the airline, the government has already issued guarantees worth Sh1.4 billion to this end, with the backstop set to be enlarged in the coming years in line with the banks’ commitment to issue a total of $175 million (Sh17.5 billion) worth of new loans to KQ.

The new loans come with an average interest rate of 7.2 per cent, significantly below the risk-free rate of 10.9 per cent on one-year T-bills.

The debt is scheduled to mature in 2027 and the government has committed to redeem it if KQ will be unable to repay the banks at that time.

play The National Treasury (kenyanwallstreet.)

 

However, despite the new loans and constant government bailout, the airline is still in financial distress and its debt service coverage ratio did not meet the threshold set on one of Afrexim’s loans as of December, raising the prospect that the government will be forced step in to pay some of its obligations.

The airline posted a Sh6.1 billion ($61 million) after tax loss for the nine months ended 31 December 2017.

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