KQ’s bankers ease loan terms as carrier eyes Sh60bn bailout

Corporate News

A Kenya Airways plane at the Jomo Kenyatta International Airport. PHOTO | FILE  

By MUGAMBI MUTEGI, pmutegi@ke.nationmedia.com

In Summary

• KQ has entered into a deal with nine of its 11 Kenyan lenders to convert $250 million (Sh25.5 billion) in short-term loans to longer terms of between two and five years, with a grace period of two years before payments resume.
• The airline’s heavy debt portfolio has left it highly exposed, given that it is meeting most of its obligations, including paying workers, through loans.

National carrier Kenya Airways’ local bankers have agreed to extend the tenure of their existing short-term loans, giving the airline breathing space to secure a Sh60 billion bailout which the CEO expects to source in six months.

KQ has entered into a deal with nine of its 11 Kenyan lenders to convert $250 million (Sh25.5 billion) in short-term loans to longer terms of between two and five years, with a grace period of two years before payments resume.

Mbuvi Ngunze, Kenya Airways chief executive, says the carrier would in a fortnight unveil an international transaction adviser who will in six to seven months oversee its long-term capital raising venture through a mix of debt and equity.

“We asked our banks for a two-year moratorium and also extended the loan tenures to allow the business to come back to profitability, generate cash and comfortably pay them back,” Mr Ngunze said.

Kenya Airways reported a record-setting after tax loss of Sh25.7 billion in the year ended March 2015. It further posted a Sh11.95 billion loss for the half-year to September.

The national carrier’s long- and short-term loans (and other facilities) grew to Sh105 billion and Sh52 billion respectively as at the end of September, a burden that has weighed heavily on the cash-hungry airline.

READ: Negative net-worth to stalk KQ investors for 4 years

The carrier, which late 2014 hired a financial adviser to help restructure its debt portfolio, says its lenders have also agreed to freeze collections for two years.

“Nine out of 11 of our local banks accepted this grace period and we are having a conversation with the other two.”

The airline’s heavy debt portfolio has left it highly exposed, given that it is meeting most of its obligations, including paying workers, through loans.

Its total current liabilities stand at Sh91.3 billion, with 57 per cent of this being short terms facilities, while the balance is mainly money owed to suppliers and cash due in advance of carriage (pre-payments).

KQ’s non-current liabilities include Sh105.4 billion in long-term loans, with the rest being Sh10 billion in bridge financing as well as Sh1.5 billion and Sh1.2 billion in deferred tax liability and fuel derivatives respectively.

Finance costs of Sh3.5 billion — mostly from the expensive fleet-acquisition programme — further weighing down on the cash-hungry airline, it had to restructure its balance sheet.

Mr Ngunze told the Business Daily that the airline that has posted losses for three consecutive years, should have completed its long-term capital raising by December.