Geza Ulole
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Kenya Airways rescue package now faces objections from banks
Tuesday August 1 2017
Kenya Airways’s restructuring plan could suffer a blow after one of its key creditors hinted at seeking legal redress, which could effectively block its passage at a special general meeting the airline has called for next week.
The management of the Kenyan national carrier has been hoping to bring all its 11 local lenders on board while pushing its restructuring programme, which would see it swap debt for equity in the firm.
However, The EastAfrican understands that Ecobank, Equity and Jamii Bora, which are collectively owed $60.6 million, are holding out against the debt conversion plan.
Two weeks ago, the airline moved to court seeking orders compelling a group of banks to accept the planned conversion of the debts owed to them into substantial stakes.
Through its lawyers Coulson Harney, KQ wants the court’s consent to convene a creditors meeting to pass the proposed restructuring plan ahead of next week’s special general meeting with its shareholders.
“The petitioner desires to convene a statutory meeting with the scheme creditors for purposes of having them consider and vote on the scheme,” the petition papers read.
It wants to activate a clause in the Companies Act that allows distressed companies to make compromise financial arrangements with the same class of creditors if three quarters of them approve of the proposal.
Airline 'remains at risk'
The EastAfrican has since learnt that one of the lenders could be headed to court to block the conversion, arguing that the deal is not in its interest.
An analysis by one of the lenders, which The EastAfrican has seen, says that even after the restructuring, the airline won’t still be out of the woods yet.
The lender, which is holding back, says that the restructuring fails to address the underlying issue that pushed the company to its current position.
Some of the lenders’ reservations arise from the fact that they feel that, so far, the restructuring objectives have not been met and converting debt into equity would put the banking sector at risk. There is also the matter of banks being allowed to participate in future rights issues, even the former shareholders, including KLM, will also enjoy this benefit.
“Post-restructuring, the airline will still remain at risk, while further amplifying the risk to the entire banking sector,” they argue in the brief.
READ: Kenya Airways set to renegotiate KLM pacts
KQ has proposed converting the outstanding and unsecured loans of $217.7 million it owes the 11 local banks and the $257.5 million it owes Treasury into equity, a plan that is expected to precipitate massive dilution of existing shareholding.
It argues that its balance sheet restructuring will offer it a cashflow relief of $350.2 million over the next five years and reduce its gross debt exposure by $482.8 million to $1.8 billion.
The solvency question
However, the eight banks that have already agreed to the conversion will be required to lend the airline an extra $175.1 million at an interest rate of about 6.65 per cent.
“The new facility is fully guaranteed by the government and shall be initially available for five years and renewable every year thereafter for five years, based on the annual utilisation requirements of the borrower,” the airline says.
One of the banks’ on the other hand says that this extra capital injection is what will increase the airlines capital cashflow but at the expense of resolving the solvency question.
In June, the airline issued its capital restructuring document that showed that it was banking on the conversion of its $243 million debt owed to the Kenyan government to equity as part of its restructuring effort that will see it out of the financial crisis that has dogged it over the past three years.
According to the document, apart from the government converting its $243 million debt into equity, it will also provide guarantees worth $525 million to cover the US Exim Bank debt, and a further $250 million to the participating local banks as a contingent liability required to enable the airline to secure future funding.
If KQ succeeds in its court petition, the 11 Kenyan banks —Equity, Commercial Bank of Africa, Co-operative Bank, DTB Africa, KCB, Jamii Bora, NIC, Chase Bank, Ecobank, I&M and National Bank — will form a special purpose vehicle to convert their debt into equity to actualise this proposal.
READ: Eleven banks get $223m KQ shares in bailout plan
They will the own a 35.7 per cent of the airline, which they will be allowed to divest over 10 years by selling in the open market or to a strategic investor. The lenders who are unwilling to be a part of the holding company will be allowed to take up KQ shares individually or opt for a combination of shares and mandatory convertible bonds.
Kenya’s national Treasury has also provided a $75 million draw down guarantee to local banks in the next 10 years, allowing them to offload their shares in the airline in the coming decade to recover their funds.
On the eventuality that the restructuring plan flops, the Kenyan taxpayer will fork out $280 million, which will be paid out to the banks by the Treasury.
Source: Kenya Airways rescue plan may not fly after all
Tuesday August 1 2017
Kenya Airways’s restructuring plan could suffer a blow after one of its key creditors hinted at seeking legal redress, which could effectively block its passage at a special general meeting the airline has called for next week.
The management of the Kenyan national carrier has been hoping to bring all its 11 local lenders on board while pushing its restructuring programme, which would see it swap debt for equity in the firm.
However, The EastAfrican understands that Ecobank, Equity and Jamii Bora, which are collectively owed $60.6 million, are holding out against the debt conversion plan.
Two weeks ago, the airline moved to court seeking orders compelling a group of banks to accept the planned conversion of the debts owed to them into substantial stakes.
Through its lawyers Coulson Harney, KQ wants the court’s consent to convene a creditors meeting to pass the proposed restructuring plan ahead of next week’s special general meeting with its shareholders.
“The petitioner desires to convene a statutory meeting with the scheme creditors for purposes of having them consider and vote on the scheme,” the petition papers read.
It wants to activate a clause in the Companies Act that allows distressed companies to make compromise financial arrangements with the same class of creditors if three quarters of them approve of the proposal.
Airline 'remains at risk'
The EastAfrican has since learnt that one of the lenders could be headed to court to block the conversion, arguing that the deal is not in its interest.
An analysis by one of the lenders, which The EastAfrican has seen, says that even after the restructuring, the airline won’t still be out of the woods yet.
The lender, which is holding back, says that the restructuring fails to address the underlying issue that pushed the company to its current position.
Some of the lenders’ reservations arise from the fact that they feel that, so far, the restructuring objectives have not been met and converting debt into equity would put the banking sector at risk. There is also the matter of banks being allowed to participate in future rights issues, even the former shareholders, including KLM, will also enjoy this benefit.
“Post-restructuring, the airline will still remain at risk, while further amplifying the risk to the entire banking sector,” they argue in the brief.
READ: Kenya Airways set to renegotiate KLM pacts
KQ has proposed converting the outstanding and unsecured loans of $217.7 million it owes the 11 local banks and the $257.5 million it owes Treasury into equity, a plan that is expected to precipitate massive dilution of existing shareholding.
It argues that its balance sheet restructuring will offer it a cashflow relief of $350.2 million over the next five years and reduce its gross debt exposure by $482.8 million to $1.8 billion.
The solvency question
However, the eight banks that have already agreed to the conversion will be required to lend the airline an extra $175.1 million at an interest rate of about 6.65 per cent.
“The new facility is fully guaranteed by the government and shall be initially available for five years and renewable every year thereafter for five years, based on the annual utilisation requirements of the borrower,” the airline says.
One of the banks’ on the other hand says that this extra capital injection is what will increase the airlines capital cashflow but at the expense of resolving the solvency question.
In June, the airline issued its capital restructuring document that showed that it was banking on the conversion of its $243 million debt owed to the Kenyan government to equity as part of its restructuring effort that will see it out of the financial crisis that has dogged it over the past three years.
According to the document, apart from the government converting its $243 million debt into equity, it will also provide guarantees worth $525 million to cover the US Exim Bank debt, and a further $250 million to the participating local banks as a contingent liability required to enable the airline to secure future funding.
If KQ succeeds in its court petition, the 11 Kenyan banks —Equity, Commercial Bank of Africa, Co-operative Bank, DTB Africa, KCB, Jamii Bora, NIC, Chase Bank, Ecobank, I&M and National Bank — will form a special purpose vehicle to convert their debt into equity to actualise this proposal.
READ: Eleven banks get $223m KQ shares in bailout plan
They will the own a 35.7 per cent of the airline, which they will be allowed to divest over 10 years by selling in the open market or to a strategic investor. The lenders who are unwilling to be a part of the holding company will be allowed to take up KQ shares individually or opt for a combination of shares and mandatory convertible bonds.
Kenya’s national Treasury has also provided a $75 million draw down guarantee to local banks in the next 10 years, allowing them to offload their shares in the airline in the coming decade to recover their funds.
On the eventuality that the restructuring plan flops, the Kenyan taxpayer will fork out $280 million, which will be paid out to the banks by the Treasury.
Source: Kenya Airways rescue plan may not fly after all
