KQ share sinks 42pc on the back of deeper losses

KQ’s Boeing 787 Dreamliner at the JFK International Airport. FILE PHOTO | NMG 

By CHARLES MWANIKI
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Summary

• KQ stock was trading at Sh2 a share Thursday, down from Sh3.46 on May 26.
• It had gone up by a huge 302 per cent in the one month to May 26, with analysts saying this may have been fuelled by speculation surrounding the planned nationalisation of the company.
• Shareholders whose paper wealth had quadrupled to Sh19.7 billion from Sh4.9 billion during the one-month price rally, have now pared back gains by Sh8.3 billion.

The Kenya Airways share has retreated by 42 percent in the past one week following the announcement of a deeper loss in the year ended December 2019, leaving investors who bought at the peak of a mini rally in May looking at losses.

The stock was trading at Sh2 a share Thursday, down from Sh3.46 on May 26. It had gone up by a huge 302 per cent in the one month to May 26, with analysts saying this may have been fuelled by speculation surrounding the planned nationalisation of the company.

KQ, as the airline is known by its international code, reported a net loss of Sh12.9 billion for the year ended December 2019, compared to a loss of Sh7.5 billion in 2018. The latest loss has widened the company’s negative equity to Sh17.9 billion from Sh2.5 billionn at the end of 2018, underlining the airline’s capital crisis.

Shareholders whose paper wealth had quadrupled to Sh19.7 billion from Sh4.9 billion during the one-month price rally, have now pared back gains by Sh8.3 billion. Speculators who drove up the price were likely banking on the possibility of the government paying a premium when buying them out in a nationalisation plan. “Even if the government was to bail it out or nationalise it, ordinary shareholders will be diluted one way or the other, and remember they have already been diluted already,” said ABC Capital corporate finance manager Johnson Nderi.

“One must consider though that the downside for shareholders buying in is limited to what they put in, hence some are willing to take that chance on the stock.”

The government has already come up with a legal framework for the nationalisation of KQ, under the National Aviation Management Bill 2020 that is likely to be passed by August.

Under the plan, the government is expected to buy out the remaining holders of 51.1 per cent of the shares, and form Aviation Holding Company to run the national carrier and Kenya Airports Authority (KAA).

KQ had also sought a Sh7 billion bailout package from the government to help it fund operations during the Coivd-19 period, but Treasury Secretary Ukur Yatani refused to offer a commitment.