The search for a strategic investor in Kenya Airways has stalled after the government froze approval of a consultant to help identify the equity partner amid claims that the latter is reconsidering the turnaround plan.
KQ, as the carrier is popularly known, planned to announce a strategic investor this year to support capitalisation of the company and boost its efforts to reduce debt and expand operations.
Now, the State has delayed hiring the consultant as it looks at options of providing capital to the national carrier. The airline has been banking on its top shareholders to back the conversion of the loans to shares in fresh efforts to smooth the path for the entry of a strategic investor.
“The next phase of the turnaround was to bring in consultants who will help us bring an equity partner for the capitalisation of the business. This was to be done in September last year and then again in October and then that has moved again,” KQ chief executive officer Allan Kilavuka told this publication last week.
“That process now needs approval from the shareholders, but the process has not been approved yet because the government is still evaluating other possible ways of helping us to capitalise the business. That is why we have not announced the appointment of a financial advisor because we are still waiting on approval from the principal shareholder.”
The Treasury is KQ’s largest shareholder with a 48.9 percent stake.
The government previously informed the International Monetary Fund (IMF) that the preparation of proposals for Cabinet approval of strategic options for restructuring KQ would be complete by the end of November last year after moving the initial deadline from April.
The IMF sees the injection of new capital into Kenya Airways as critical to the sustainability of the company despite the airline flying back into profitability in the six months to June.
KQ still suffers a negative equity position, standing at Sh136.1 billion in the wake of mounting debts and prolonged stay in the loss-making territory. Negative equity is where a company’s debt exceeds its assets, translating into financial distress since in the event of liquidation shareholders would receive nothing.
A cleaner balance sheet will put KQ in a position to attract a strategic investor, who is needed to inject further capital and boost strategic input.
Now, KQ’s leadership wants the State and the banks to accept more shares in favour of lowering debt, testing the lenders’ resolve in the turnaround of the airline.
In 2017, the government and 11 top banks, including KCB, Equity, Cooperative Bank and NCBA, converted part of billions of shillings owed to them into equity in an effort to return the carrier to profitability.
The swap deal, which cut debt and eased the pressure on cash flow, increased the government's shares to 48.9 percent from 29.8 percent while banks got a 38.1 percent stake, through a special vehicle.
Air France KLM's 26.7 percent stake was diluted to 7.8 percent.
