Kenya Airways cautions investors after Cabinet approves Sh45bn Govt loan financing

National carrier Kenya Airways has cautioned shareholders and investors following Cabinet approval of a US$350 million (approximately Sh45.15 billion) government loan and a proposed restructuring of about Sh122 billion in existing government loans.

In a notice to the Capital Markets Authority (CMA), the Nairobi Securities Exchange (NSE) and the investing public, the national carrier said the two measures were intended to address its immediate financing needs and strengthen its balance sheet as it pursues a turnaround.

The announcement follows the Cabinet dispatch of October 9, which confirmed approval of the financing to meet urgent obligations, including aircraft maintenance and returning grounded planes to service.

However, Kenya Airways said implementation of the measures remains subject to negotiations, definitive transaction documents, shareholder approvals where required, and regulatory clearances.

The airline consequently advised investors to exercise caution when dealing in its securities until the outstanding terms are determined and formally communicated to the market.

“Shareholders and investors are advised to exercise caution when dealing in the securities of the Company until the outstanding terms are determined and announced to the market,” the notice stated.

The proposed US$350 million shareholder loan is intended to support Kenya Airways' immediate operational requirements while it implements its longer-term turnaround plan.

According to the national carrier, the financing will cater for critical expenses, including aircraft maintenance, the return to service of grounded aircraft and other urgent operational obligations.

The October 9 Cabinet dispatch said the funds would be disbursed in tranches under the oversight of the National Treasury, with a repayment period of up to 10 years.

Kenya Airways' announcement similarly proposed a 10-year loan tenor, with the possibility of earlier repayment under terms to be agreed between the company and the government.

The facility may also be converted into equity at the government's option, subject to the necessary shareholder and regulatory approvals, as part of a future capital restructuring.

The approval therefore provides a framework for the proposed financing, but the final transaction terms and the required approvals remain outstanding.

Alongside the new financing, the government has approved in principle the conversion of approximately Sh122 billion in existing shareholder loans to Kenya Airways, together with accrued interest, into an equity-qualifying tradable instrument.

The proposed restructuring is intended to address the airline's negative equity position, strengthen its balance sheet and improve its creditworthiness.

Kenya Airways said the move would also support planned capital-raising initiatives through the market using an Investment Memorandum and facilitate the onboarding of suitable strategic partners and investors.

The Cabinet dispatch similarly described the conversion as a measure intended to strengthen the airline's financial position and support future fundraising.

The proposed instrument is not an immediate cash injection equivalent to the value of the existing loans. Rather, it is a planned restructuring of government debt, subject to the necessary corporate, shareholder, regulatory and transaction approvals.

The company has not indicated in the announcement that all the outstanding loans have already been converted or that the final terms of the tradable instrument have been settled.

Kenya Airways said the cautionary notice was issued in line with its continuing disclosure obligations under the Capital Markets Act, the Capital Markets (Public Offers, Listings and Disclosures) Regulations, 2023, applicable CMA corporate governance requirements and NSE Listing Rules.

The notice will remain in force and be renewed at intervals of no more than 60 days, or as otherwise required by applicable capital markets regulations, until the company issues a further announcement or formally withdraws it.

KQ said it would keep shareholders, regulators and the investing public informed as material details are determined, including when definitive agreements are executed.

It also directed investors to rely on information formally released through the NSE, the company's official communication channels or other channels required by the CMA.

The Cabinet dispatch said the financing and debt restructuring measures form part of Kenya Airways' long-term turnaround plan and are intended to safeguard an airline that contributes more than US$1.3 billion annually to Kenya's gross domestic product through tourism, trade and regional connectivity.

The government-backed measures focus on two financial needs: providing funds for immediate operational obligations and restructuring existing debt to improve the carrier's balance sheet.

Implementation of both measures remains subject to the relevant corporate, shareholder and regulatory processes. Kenya Airways said further announcements would be made once the outstanding matters are sufficiently determined.