KQ board power shifts to banks as KLM diluted
Treasury and lenders to call the shots at national carrier in new ownership plan
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.
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.
RESCUE PLAN A Kenya Airways