18-Jul-2017 2:01 PM

Kenya Airways details debt restructuring, shareholders to vote on proposals in Aug-2017

Kenya Airways issued (16-Jul-2017) a circular to shareholders regarding the proposed restructuring of debt and equity and the proposed open offer to existing shareholders. The company reached a restructuring agreement with Kenya's Government, KLM and eight Kenyan banks on 14-Jul-2017 and will hold an extraordinary general meeting on 07-Aug-2017, at which shareholders will vote on proposals for the capital restructuring of existing debt and an open offer to existing shareholders to raise up to KES1.5 billion (USD14.45 million) through an issue of new ordinary shares. Shareholders representing more than 56% of shares, including the Government and KLM, intend to vote in favour of the resolution. The airline said operational cash flows are unable to service its debt obligations and the overall level of debt is unsustainably high. The carrier stated: "the overall level of long-term debt means that a return to profitability for investors based on the current balance sheet structure would be exceptionally challenging, and highly unlikely to occur". The objectives of the restructuring are to reduce the overall level of borrowings, increase available cash and ensure the ease of implementation of transactions necessary for the restructuring. The airline negotiated the following inter-conditional transactions with the restructuring in mind:

  • Inter-conditional and consensual commitment by all key stakeholders to place the company on a path to financial stability and operational efficiency;
  • Reduce the company's current gross debt exposure of approximately KES242 billion (USD2.33 billion) by approximately KES50 billion (USD481.77 million), including:
    • Conversion of existing Government loans and interest of USD265 million into equity and provision of credit support to some key financial stakeholders to enable restructured financing on aircraft;
    • Conversion of USD221 million of loans from certain Kenyan banks into debt in KQ Lenders Co Ltd, backed by new ordinary shares issued to KQ Lenders Co Ltd;
  • Cash-flow relief of approximately KES37.1 billion (USD357.2 million) from restructuring the timing and form of amounts due to aircraft operating and finance lessors;
  • Provision of investment of up to USD76.5 million of cash and in-kind contributions from KLM;
  • Arrangement of USD175 million of financing facilities from a number of existing Kenyan bank partners;
  • KLM and the Government will remain key strategic shareholders via a combination of converting loans into equity and through the investment of new capital in return for the issue and allotment of ordinary shares;
  • Conversion of Government and Kenyan bank debt to equity will mean a large equity capital increase and issue of new ordinary shares. The effect will be to bolster balance sheet equity and capital structure sustainability with overall shareholder book equity becoming positive from the current negative position of KES44.9 billion (USD432.4 million);
  • An employee offer will be made through a new employee share ownership scheme to be introduced for qualifying employees;
  • Existing shareholders' holdings of ordinary shares will be diluted by 95% as a result of the restructuring and employee offer. Existing shareholders will be given the opportunity to reinvest in the company and acquire further new ordinary shares via the open offer after completion of the restructuring. To support this process the Government, KLM and KQ Lenders Co Ltd will not participate in the open offer.

As a result of the restructuring, the Kenyan Government's stake in the airline will increase from 29.8% to 46.53%, KLM's stake will decrease from 26.73% to 13.71% and KQ Lenders Co Ltd will hold 35.69%. The carrier said there is no viable alternative to the restructuring, without which it will no longer be able to service debt obligations as they fall due and will be unlikely to continue to operate as a going concern. [more - original PR]

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