World Bank’s investment arm seeks seat on Kenya Airways Board

World Bank’s private lending arm, International Finance Corporation (IFC), is pushing for a seat on the board of the troubled Kenya Airways, suggesting that the US-based financial institution wants to have a say on how the airline is managed.

National Treasury Cabinet Secretary Henry Rotich said a demand for a board spot by the IFC will be granted ‘soonest’, but reckons that such changes would require review of the current shareholder agreement to accommodate IFC, which is KQ’s third largest stakeholder with a 9.56 per cent holding acquired during the 2012 rights issue.

“We are reviewing the shareholder agreement to accommodate the IFC, which has demanded a seat on the airline board,” Rotich said on Tuesday. The lender, Rotich explained, was concerned about the operations of the national airline just like all other shareholders, especially after it reported a record loss of more than Sh25 billion for the financial year ended March.

IFC is among the airline’s biggest lenders, apart from the equity stake it holds since 2012. The firm was invited to participate in the rights issue of 2012, which would otherwise have been unsuccessful. IFC bought the additional shares that were due to existing shareholders but who forfeited to pay for them. The airline sought additional funds from the IFC through a credit facility equivalent to Sh7 billion – at the prevailing exchange rates in 2012.

It is expected that the heavy financial involvement in the airline by the World Bank body that has informed the demand for board representation. In the present composition, four directors represent KLM and the Kenyan Government (two each) – who jointly control about 56 per cent stake. The controlling stake held by the two other major shareholders was not reflected in the composition of board, the senators led by the committee chairman Anyang Nyong’o said.

Rotich was responding to questions by a select committee of the Senate that is probing the near collapse of the airline. The Senators were seeking to understand how the company’s 11 directors are appointed, and their capacity to provide oversight over its operations. Five of the board members would be independent, while the chief executive and his principal deputy, who are also directors, would be appointed by KLM according to the Memorandum of Understanding entered in 1995 with the Dutch airline preceding the privatisation of KQ.

Kenya had contracted the IFC to among other things to prepare a strategic review and draw a privatisation action plan that would include recommending a strategic partner. In essence, KLM’s entry to the national carrier was on the approval of the IFC, which also designed and implemented the initial public offering.

The impending review of the shareholder agreement could significantly reduce the control of KLM in the national carrier, possibly ending the cooperation that the State and some shareholders now claim was working against the interests of Kenya Airways.

Rotich said the joint venture with KLM had actually worked and had been successful in growing fleet and passenger numbers in the past, but needed to be reviewed.

He added that his ministry was considering converting the Sh4.2 billion shareholder loans extended to the firm in June to equity in a proposition that would significantly dilute the stake held by the other shareholders.

The State had also provided letters of comfort for the lenders in a $200 million bridge financing that would offer short-term relief to the biting cash flow constraints.