A Kenya Airways plane. KQ last week went to court seeking to activate a clause in the Companies Act that allows distressed firms to enter into financial “compromise” arrangements with the same class of creditors if three quarters approve. file photo | nmg
- KQ owes Equity Sh5.2 billion, National Bank
- .
- I&M Bank
- and Ecobank are claiming Sh824 million each from the cash-strapped airline while Chase Bank and Jamii Bora are owed Sh721 million and Sh412 million respectively.
- The carrier last week went to court seeking to activate a clause in the Companies Act that allows distressed firms to enter into financial “compromise” arrangements with the same class of creditors if three quarters approve.
Summary
Eleven local banks and the Treasury are
Thursday morning expected to vote on the proposed conversion of their
combined Sh50.2 billion Kenya Airways
debt into shares, marking a critical stage that could make or break the airline’s recovery plan.
KQ,
as the airline is popularly known, will be seeking to get an
affirmative vote from the creditors, who hold at least 75 per cent of
the unsecured debt or Sh37.65 billion.
If this
threshold is met, the airline will file results of the vote with the
High Court for approval as per the Companies Act. Such a result will
effectively force Equity Bank
, Jamii Bora Bank and
Ecobank — the three banks opposed to the plan and are collectively owed
Shh6.4 billion or just 13 per cent of the outstanding debt — to toe the
line.
“The scheme meeting takes place Thursday. The
banks and the Treasury, or their proxies, will each cast their vote
according to their share of the total unsecured debt,” a person close to
the transaction told the Business Daily.
ALSO READ: KQ recovery plan faces banks challenge
KQ owes Equity Sh5.2 billion, National Bank (Sh3.5
billion), Co-operative Bank (Sh3.3 billion), CBA (Sh3.1 billion), and
Sh2.1 billion each to NIC Bank , DTB and KCB Group .
I&M
Bank and Ecobank are claiming Sh824 million each from the
cash-strapped airline while Chase Bank and Jamii Bora are owed Sh721
million and Sh412 million respectively.
The carrier
last week went to court seeking to activate a clause in the Companies
Act that allows distressed firms to enter into financial “compromise”
arrangements with the same class of creditors if three quarters approve.
KQ, through its lawyers Coulson Harney, argued that this balance sheet
restructuring is its single play to stay afloat and must be allowed to
proceed.
The law states that if the vote threshold is
met, a distressed firm and its agreeable creditors can proceed to
implement the proposed arrangement, leading the dissenting minority down
the rabbit hole.
KQ in its petition last week said
eight of the 11 banks and the Treasury — who are collectively owed 87
per cent (or Sh43.7 billion) of the Sh50.2 billion unsecured debt — have
“agreed to vote in favour of the scheme.”
The airline
has now received the High Court’s green light to hold the meeting, after
an application by Equity seeking to block the meeting and resultant
debt to equity swap flopped.
“The results of the vote
will be recorded and submitted to the court at a sanction hearing. If
the court is satisfied that the results have met the thresholds set in
law, it is expected they will sanction the arrangement,” the source
said.
Several executives of the affected banks grumbled
that, over and above further extending the life of the loans, they are
being “forced to partner” and become owners of a company which may not
have been in their radar in the first place.
The
airline has scheduled an extraordinary general meeting for Monday where
its shareholders will be requested to, among other things, vote in
favour of the restructuring plan, which captures the debt-to-equity
swap.
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