KQ board power shifts to banks as KLM di­luted

Trea­sury and lenders to call the shots at na­tional car­rier in new own­er­ship plan

Business Daily (Kenya) - - FRONT PAGE - Charles Mwaniki cmwaniki@ke.na­tion­media.com

The power bal­ance at na­tional car­rier Kenya Air­ways’ board­room has shifted in favour of 10 lo­cal banks that will to­gether with the Trea­sury now call the shots at the trou­bled air­line.

A new share­hold­ing struc­ture re­sult­ing from a com­plex debtto-eq­uity swap has seen the Trea­sury and a con­sor­tium of lo­cal banks take up the lion’s share of board seats at KQ, tip­ping the scales against Dutch car­rier KLM which has had im­mense in­flu­ence over af­fairs at the Kenyan air­line.

The Trea­sury will now nom­i­nate three mem­bers to the KQ board while the 10 banks will take up two seats, in pro­por­tion to their com­bined own­er­ship of 87 per cent shares of the trou­bled

air­line. The gov­ern­ment pre­vi­ously held two board seats, as did KLM.

“We have to­day signed a new co-op­er­a­tion agree­ment that re­places the old one. This new one sets out the board com­po­si­tion in light of the new share­hold­ing struc­ture, where the banks are go­ing to have two board mem­bers, the gov­ern­ment three and KLM one,” said Trea­sury sec­re­tary Henry Rotich at a me­dia brief­ing yes­ter­day.

One of the two direc­tors pre­vi­ously nom­i­nated by KLM, Ron­ald Schip­per, re­tired by ro­ta­tion ahead of the KQ’S an­nual gen­eral meet­ing in Au­gust and did not of­fer him­self for re-elec­tion.

This left only Joseph Veen­stra as the Dutch car­rier’s board rep­re­sen­ta­tive. The lo­cal banks have yet to nom­i­nate their rep­re­sen­ta­tives to the board, which also has three in­de­pen­dent mem­bers.

KLM is scal­ing back its board pres­ence in line with the drop in the size of its share­hold­ing of the air­line to 7.8 per cent from the 26.7 per cent it held pre­vi­ously.

The Dutch air­line, which has been a KQ share­holder and part­ner since De­cem­ber 1995, will also in­ject a to­tal of Sh7.9 bil­lion in fresh cap­i­tal into the busi­ness, al­though this amount is not enough to pre­vent a di­lu­tion in light of the large amounts be­ing con­verted by the State and the banks.

“They sup­ported the trans­ac­tion strongly, and they are keen to con­tinue en­gag­ing on the strate­gic di­rec­tion of KQ. They also par­tic­i­pated in pro­vid­ing some loans, and it is only that gov­ern­ment and banks loans were huge and when they were con­verted they ended up di­lut­ing oth­ers, in­clud­ing KLM,” said Mr Rotich.

Other share­hold­ers in the na­tional car­rier, in­clud­ing the World Bank’s pri­vate in­vest­ment arm the In­ter­na­tional Fi­nance Cor­po­ra­tion (IFC), will hold a com­bined 5.2 per cent stake.

As at March 2016, KQ had 79,753 share­hold­ers on its books, with lo­cal in­di­vid­ual in­vestors mak­ing up 95.4 per cent of this num­ber.

Both the banks and the gov­ern­ment yes­ter­day said that they had also ap­plied to the Cap­i­tal Mar­kets Au­thor­ity for ex­emp­tion from a re­quire­ment to make a takeover of­fer for the air­line, on grounds that the re­struc­tur­ing is on the ba­sis of res­cu­ing a firm in fi­nan­cial dis­tress and in the in­ter­est of the pub­lic.

The banks ex­pect to re­coup their debts by sell­ing the air­line’s shares to a strate­gic in­vestor or in the open mar­ket, with a tar­get of 10 years for them to get back their money.

The re­struc­tur­ing plan was first mooted in June. It has been agreed fol­low­ing pro­tracted ne­go­ti­a­tions which saw Jamii Bora Bank break ranks with the other 10 banks and opt out of con­vert­ing its Sh381 mil­lion loan into eq­uity, in­stead choos­ing to re­ceive its dues in pay­ments spread over five years.

KQ board ad­viser and for­mer chief ex­ec­u­tive of­fi­cer Mbuvi Ngunze said the line of re­struc­tur­ing trans­ac­tions will be com­pleted by the end of this week, mean­ing that KLM is also ex­pected to put pen to pa­per on its co-op­er­a­tion agree­ment in the com­ing days.

The Trea­sury came up with the plan to save KQ from col­lapse af­ter as­sess­ing the hugely neg­a­tive im­pact its fail­ure would have on the econ­omy, af­fect­ing the trans­port, lo­gis­tics and tourism sec­tors that de­pend on the air­line.

KQ has in re­cent years sagged un­der mas­sive losses that re­main the big­gest recorded by a listed firm at the NSE, at­trib­uted to the ill-fated Project Mawingu ex­pan­sion pro­gramme which left it with a bloated fleet.

The air­line nar­rowed its net loss 61 per cent to Sh10.2 bil­lion in the year ended March 2017 when its net worth sunk to a neg­a­tive Sh44.9 bil­lion.

The loss re­duc­tion was at­trib­uted to ag­gres­sive cost cut­ting that has seen it lease out and sell a num­ber of its long haul air­craft, as well as re­trench staff.

DIANA NGILA

AGREE­MENT

I Trea­sury sec­re­tary Henry Rotich (left), Trans­port sec­re­tary James Macharia (cen­tre), In­vest­ment sec­re­tary Es­ther Koimett (back left), Kenya Air­ways board ad­vi­sor Mbuvi Ngunze and Trea­sury prin­ci­pal sec­re­tary Ka­mau Thugge (right) dur­ing the sign­ing of the Kenya Air­ways inan­cial and cap­i­tal op­ti­mi­sa­tion plan at the Na­tional Trea­sury in Nairobi yes­ter­day.

--FILE

RES­CUE PLAN A Kenya Air­ways

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