Kenya Airways wins battle with banks on loan restructuring

Kenya Airways hopes to fly back to profitability with turnaround plan.

Kenya Airways has won the fight against banks that had been fighting its restructuring and is now set to implement the plan that will see the lenders become shareholders of the airline.

Three banks – Equity, Jamii Bora and EcoBank – had opposed the move to convert loans advanced to the airline into equity.

They moved to court hoping to stop the restructuring plan proposed by Kenya Airways (KQ) where a total of 11 local banks would hold a 37 per cent stake in the national carrier. The Court of Appeal, however, threw out the application on Friday.

Judges Mohamed Warsame, Kathurima M’noti and Agnes Murgor ruled that the airline could go ahead with the restructuring.

The court also ordered that the banks and the Government should hold joint meetings with the airline, noting that they were all creditors to KQ. The three had opposed a joint meeting, arguing that the Government was at an advantage in decision-making.

Conversion of debt into equity will now be carried out as per the Companies Act.

“The other issues regarding the sanction of the scheme of arrangement as it has been presented by the first respondent should be dealt with strictly as provided in the Companies Act,” the Court of Appeal ruled. “The consolidated appeals are dismissed with no orders as to the costs.”

In the case, the banks argued that they would be reduced to just endorsing what will be decided as the Government, which also has the Transport minister and The Treasury on the airline’s board, makes decisions.

Special meeting

At the centre of the case was a Special General Meeting which ought to have been held on August 1, 2017.

In the meeting, KQ hoped to convince the banks to accept and convert loans they had advanced to the airline into equity.

They were also to discuss the appointment of Mbuvi Ngunze as the chairman of the Scheme Creditor’s Meeting, and in his absence Richard Harney.

The three banks had advanced a combined $60.6 million (Sh6 billion) to KQ, and were opposed to the debt-conversion and the appointments.

According to the lenders, the arrangement was not presented to the creditors for a detailed discussion and they argued that the intended meeting was to sanction the scheme as a formality.

On the appointments, they argued that Mr Ngunze and Mr Harney were not impartial as the former was the airline’s CEO when it ran into financial doldrums and the latter was the restructuring advisor.

Their argument was that the largest creditor to KQ is the Government which at the same time controls both the directorship and shareholding with a 29.8 per cent stake.