Kenya Airways to Repay $150 Million Loan

Kenya Airways is set to repay USD150 million to the Kenyan government through a shareholder loan agreement, with final terms expected to be negotiated by mid-2025, according to Treasury Cabinet Secretary John Mbadi. This development was disclosed in a notice to the Kenyan parliament and comes amid significant efforts to stabilize the airline’s financial position and protect Kenya’s credit rating.

The repayment obligation arose after the Treasury, acting as the sovereign guarantor, had to settle KES19.3 billion shillings (approximately USD150 million) in cash with a consortium of Kenyan commercial banks by the end of August 2024. Alternatively, the Treasury was required to provide an acceptable government security instrument to avoid a sovereign default that would have adversely affected Kenya’s credit rating. This measure was taken to ensure the financial stability of Kenya Airways, a flagship carrier that plays a vital role in the nation’s economy and aviation sector.

The consortium of banks, known as the KQ Lenders, includes prominent institutions such as Equity Bank, KCB Group, and Cooperative Bank. Collectively, these lenders own 38.1% of Kenya Airways. Earlier, the banks rejected an offer from the Treasury to repay the outstanding loans through a 6.5-year bond. The decision to settle in cash underscored the urgency of the situation and the necessity of protecting the country’s financial reputation in international markets.

On January 3, the Kenyan government withdrew the USD150 million as an emergency item without obtaining parliamentary approval at that time. This move was critical in preventing a potential sovereign default that could have led to a downgrade of Kenya’s credit rating, further complicating the nation’s ability to borrow at favorable rates in the future. The repayment and the measures taken were subsequently included in the supplementary budget for parliamentary review, as reported by the country’s Business Daily newspaper.

The decision to require Kenya Airways to repay the USD150 million through a shareholder loan agreement marks a significant step in the government’s broader strategy to streamline the financial structure of the airline and restore confidence among investors and international financial markets. It also highlights the government’s commitment to holding the airline accountable for its debt obligations while ensuring that state-backed financial support is managed in a way that does not undermine the country’s fiscal stability.

Industry experts view this move as part of a necessary restructuring process for Kenya Airways, which has faced challenges in recent years. The repayment is expected to improve the airline’s balance sheet and help position it for future growth. By meeting its debt obligations, Kenya Airways aims to strengthen its financial standing and enhance its ability to compete in a challenging global aviation market.

As Kenya Airways works towards finalizing the shareholder loan agreement by mid-2025, stakeholders remain optimistic that the airline will emerge more resilient. The agreement will also serve as a precedent for how strategic financial interventions can help safeguard a nation’s credit rating while supporting key national assets. This repayment plan is an essential part of Kenya’s broader efforts to ensure the long-term sustainability of its aviation sector and economic stability overall.

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