Mbuvi Ngunze, KQ board adviser. file photo | nmg
Summary
- The Nairobi Securities Exchange-listed firm has proposed far-reaching turnaround measures that, among other things, imposes major losses on shareholders and creditors, including local banks it owes a total of Sh23 billion.
- KQ, as the airline is popularly known, said in a circular to shareholders most of the banks have backed the plan although some are yet to sign up.
- The airline said the resistance may force it to rely on provisions of the Companies Act to force the holdout banks into accepting the deal, including conversion of the loans into ordinary shares.
Some commercial banks that national carrier Kenya Airways
owes billions of shillings are holding out against the just-released
rescue plan, putting the deal that offers the lenders a substantial
stake in the airline at the risk of collapse.
The
Nairobi Securities Exchange-listed firm has proposed far-reaching
turnaround measures that, among other things, imposes major losses on
shareholders and creditors, including local banks it owes a total of
Sh23 billion.
KQ, as the airline is popularly known,
said in a circular to shareholders most of the banks have backed the
plan although some are yet to sign up.
The airline
said the resistance may force it to rely on provisions of the Companies
Act to force the holdout banks into accepting the deal, including
conversion of the loans into ordinary shares.
“The key
risk in relation to the scheme is that creditors and other stakeholders
dispute the process, which may result in delays or in it being
unsuccessful,” KQ said.
“If such actions mean that the
scheme is not sanctioned in time, or at all, the restructuring cannot be
implemented. In this instance the company will not be able to continue
to operate as a going concern and so shareholders would be unlikely to
see any return on their current investment. Closure of the company and
liquidation would follow.”
The resistance by the banks —
which were not identified — suggests their belief that the terms
offered to them in KQ’s rescue plan is not attractive enough to warrant
their participation.
The banks that made short-term unsecured loans to KQ include KCB
, Equity and Co-op Bank
.
ALSO READ: KQ cuts net loss by 61pc to Sh10bn - VIDEO
The
government has offered to guarantee the bank loans but only to lenders
who agree to issue new Sh18.1 billion credit facilities to the national
carrier.
The rescue plan envisages that the lenders
will recoup the Sh23 billion by selling the airline’s shares to a
strategic investor or in the open market in the medium term.
KQ
says there is no viable alternative to the restructuring, which could
result in a major battle with the holdout banks. The company plans to
subdue the dissenters by first gaining support from a majority of the
lenders.
“It is likely, given that a minority of the
Kenyan banks have not signed the restructuring agreement … that the debt
restructuring will be implemented by way of the scheme (forced
participation), along with the government debt restructuring,” the
company said in the circular.
The scheme, which KQ
plans to structure, is an application of the Companies Act which allows
firms to push through compromise agreements with banks so long as it has
received the backing of the same class of creditors amounting to 75 per
cent of the owed sums. In this case, the unsecured lenders — government
and banks — are owed Sh50.2 billion. To have its way, KQ just needs the
backing of creditors who are owed Sh37.7 billion to have its way.
A company can apply to the courts seeking an order binding all its creditors once the condition is met.
“A
compromise or agreement sanctioned by the court is binding — on all
creditors or the class of creditors, or on the members or class of
members, concerned,” says the law.
It remains to be seen whether KQ will hit the 75 per cent threshold and force the participation of the dissenters.
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