Banks reject Kenya Airways’ stake offer

Some banks opposed to the restructuring of Kenya Airways Thursday threw a spanner in the works, obtaining a court order to nullify resolutions endorsing the plan.

The Standard has learned that the Kenya Airways management Thursday morning met creditors, including the Government and 11 lenders, and resolved to convert the combined Sh50.2 billion debt owed them by the airline into shares.

However, the resolutions of the meeting were nullified by a ruling in a petition filed by some of the lenders pending a hearing next week.

“Someone successfully filed a court injunction until the matter is heard on August 10,” a source said.

The National carrier had forced an affirmative vote from most of the lenders. However, Equity Bank, Jamii Bora Bank, and Ecobank dissented.

Political expediency

Kenya Airways needed at least 75 per cent of the creditors, with a cumulative unsecured debt of Sh37.65 billion, to okay the deal.

The airline was expected to file the results of the vote with the High Court for approval, according to the Companies Act.

The three lenders have opposed the plan, arguing that Kenya Airways could still struggle after the restructuring and complaining that they were being sacrificed for political expediency.

“What they do not want is for some of the airline’s assets to start being seized by secured lenders,” a source said.

“How do you explain why they are paying an adviser so much money, enough to pay off some of the local lenders?” asked the source.

The advisers, including US-based advisory firm PJT Partners, audit firm Deloitte, lawyers from New York-based White & Case, and Coulson Harney, are set to be paid in aggregate Sh2.5 billion ($24.85 million), which equates to 11 per cent of local banks’ outstanding unsecured debt.

Kenya Airways said it would not comment on the matter as the High Court had issued a gag order on it.

“In compliance with the High Court’s orders, Kenya Airways regrets it is unable to disclose any information at this stage relating to the court proceedings,” the airline said in a statement.

Minority creditors

Another source, however, said the ruling will not affect KQ’s intended meeting with its shareholders next week to endorse the restructuring plan as the “processes are expected to run parallel to each other”.

This is the second time aggrieved parties have gone to courts to stall the deal. An application by Equity Bank seeking to dismiss a case filed by the airline to compel minority creditors to play ball flopped.

KQ owes Equity Bank Sh5.2 billion, National Bank Sh3.5 billion, Cooperative Bank Sh3.3 billion, CBA Bank Sh3.1 billion, and Sh2.1 billion each to NIC Bank, DTB, and KCB Group. I&M Bank and Ecobank are claiming Sh824 million each from the cash-strapped airline.

Chase Bank and Jamii Bora are, on the other hand, owed Sh721 million and Sh412 million respectively.

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