Kenya Airways’ $150M Loan Converted to Treasury Bonds

A consortium of Kenyan commercial banks is set to convert KES19.3 billion (USD150 million) in loans to Kenya Airways into Treasury bonds after the debt repayment deadline passed in August. This conversion is part of a broader effort to alleviate the airline’s substantial debt burden and enhance its financial health. The move is seen as a strategic step to attract potential investors, according to a report from Kenya’s Business Daily.

The group of ten banks, known as the KQ Lenders, includes Equity Bank, KCB Group, and Cooperative Bank. Together, they own a 38.1% stake in Kenya Airways, and they have been offered a 6.5-year bond, although the interest rate remains undisclosed. The Kenyan government had guaranteed the loan and was expected to either settle it or provide a government security instrument by the end of August.

Despite Kenya Airways reporting its first half-year profit in over a decade, the airline continues to struggle with negative equity amounting to KES123.6 billion (USD958 million) due to accumulated debts. The current ownership structure, formed after a 2022 restructuring, sees the Kenyan government holding 48.9%, the KQ Lenders with 38.1%, KLM Royal Dutch Airlines with 7.8%, and other minority shareholders accounting for the rest.

The debt conversion is part of the ongoing efforts to stabilize the airline, which has faced financial challenges since 2017. Kenya Airways initially borrowed USD924 million in 2014 to finance aircraft purchases, but financial struggles intensified during the Covid-19 pandemic, necessitating further government intervention.

This debt restructuring aligns with Kenya’s broader efforts to privatize the national carrier while mitigating risks associated with government-guaranteed loans.

Sources: AirGuide Business airguide.info, bing.com, ch-aviation.com