In a circular sent to shareholders ahead of its special general meeting on August 7, 11 commercial banks that KQ owes $219 million have been offered a debt-for-equity swap deal that will see them jointly replace Dutch airline KLM as the second largest shareholder after the National Treasury.
This Extraordinary General Meeting has been called by Kenya Airways with the main agenda item being the conversion of debt into equity.
Under the shareholder structure, the 11 Kenyan banks will offer $174 million in new credit to KQ to “principally secure aircraft engines refurbishment.
Some of the commercial banks set to benefit from the new shares structure include Equity, KCB Group and Co-operative Bank who jointly own 35.7 per cent of the national carrier through a special purpose vehicle called the KQ Lenders Company Limited.
Big winners of the move in terms of shareholding and representation on the Board of Directors of the company will be the Kenyan government which share portfolio in Kenya Airways will rise to 46.53 percent, up from the present 29.8 percent.
KLM in contrast will lose big time as their share percentage will shrink from the current 26.73 percent to just 13.71 percent, despite a recent injection of funds worth over 2.7 billion Kenya Shillings.
Big winner, if one can talk of winners, will be a consortium of Kenyan banks which have been persuaded to convert their loans into equity which will give them a 35.69 percent shareholding.
Biggest losers though will be private and small scale investors whose current 24.02 percent shareholding will dilute to just 1.24 percent. Kenya Airways staff will see some obligations towards them also converted into shares, giving them a 1.9 percent holding, more than what will be left for ordinary investors who got truly burned by these developments.
Chairman Michael Joseph has also gone on record to warn shareholders that unless approvals for the changes are secured the company may enter insolvency, seen as an unnecessary threat given that way over 50 percent of the shares held have signalled they will adopt the changes during the EGM.
Said a small scale investor to this correspondent late last evening: ‘The Chairman is riding roughshod over small investors who have faithfully stood by the airline and kept their shares. Now they are being punished instead of being rewarded for their loyalty. This is on Joseph and him alone. Their plans lead to a total erosion of small shareholder values and while they may have the votes to push this through, they should also be prepared to be sued for doing that to us‘.
Intriguing scenarios are emerging on that front and all eyes will be on KQ’s share values in the runup to the EGM, the decisions taken by the Extraordinary General Meeting and how the airline will subsequently fare on the stock market and in operational and financial performance.