Government guarantees KQ's future by turning its loans into equities to entice Investors
The government views the airline as a strategic asset and a national pride.
This is after the Kenyan government agreed to offer the airline $750 million in guarantees to the airline’s existing creditors to help the heavily-indebted carrier secure financing from other sources to complete its recovery.
"The guarantees would be in exchange for material concessions to be provided as part of the financial restructuring which would secure future funding for the company," the cabinet document said, without giving details on the concessions.
KQ also posted a statement on its social handle on Tuesday announcing the government’s nod to its restructuring plan.
“The government continues to support Kenya Airways as it a valuable national asset, as a major shareholder, we are keen to secure the airlines future and ensure it has a health liquidity profile and remains operational” the Cabinet secretary for Transport, James Macharia is quoted as saying.
The guarantees, approved by the cabinet, will cover $525 million owed to the U.S. Exim Bank and the rest to local lenders.
The government will also convert its existing loans to the carrier into equity, it said. It was not immediately clear how much it has lent the carrier, but a source at the airline said it was a "significant" amount lent over time.
All is left now is for the restructuring proposal be taken to the National Assembly for approval.
The move has been promoted by the Government to entice investors to buy shares into the trouble airline and bring it back on the road to recovery.
Compared to corporate shares, equities are a safe bet since one is assured of a fixed income returns. An investor will received an agreed upon fixed income on an annual basis and then on the last year when the equity matures he/she is entitled to a lump sum total called principal.
Equities are also cushioned against inflation and therefore generally preferred by Investors.
The government views the airline as a strategic asset which supports other industries such as tourism as well as encourage investments from abroad, that why it has been hesitant to throw in the towel and dissolve the airline.
Businessman Chris Kirubi who own multiple shares at the Airline even recently suggested the Airline should be dissolved and a regional airline be created in its place.
The airline is partly-owned by Air France-KLM (26.7%) and the Kenyan government (29.8%) has in recent past struggled to stay afloat.
The Airline has also appointed Sammy Chepkwony, a Tata Chemicals Magadi executive as its human resource director to fill a position left vacant in April last year after Alban Mwendar was pushed out by striking pilots.
Sebastian Mikosz, a Polish national, is also expected to take over leadership of the national carrier.
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