Kenya Airways’ long-time partner Royal Dutch Airlines (KLM) will lose three-quarters of its shareholding in the national carrier in a new ownership structure that now puts the Government in the driver’s seat.
The new setup is part of a recovery plan that KQ has been undertaking for more than a year.
The plan, which is set to be concluded this week, will see KLM’s shareholding substantially whittled down to seven per cent from 26.73 per cent, while tightening the State’s grip on the struggling airline by increasing its stake to 48.9 per cent from 29.8 per cent previously.
The Dutch carrier, which for two decades has been calling the shots, will also lose crucial control over the national carrier’s management after the deal relegated it to having one member on the board of directors. It previously had two directors.
The Dutch airline will also no longer have the power to appoint managers.
This is a departure from the past, where KLM has had absolute authority at KQ, including approval of the sale of any shares held by the Government.
An objection by a single KLM director was enough to overturn a resolution passed by the 10-member board.
Under the new arrangement, a consortium of local banks through a special purpose vehicle – KQ Lenders Company 2017 Ltd - will also replace KLM as the second largest shareholder at 38.1 per cent after having the debt owed to them by KQ converted to equity.
Treasury Cabinet Secretary Henry Rotich said yesterday the restructuring would be concluded this week.
“The Government is kick-starting the closing process of the transaction, which is programmed to be completed this week,” said Mr Rotich at a press briefing in his office. The Government’s stake in the airline has gone up after converting some of its debts to equity, which at 48.9 per cent is a percentage point short of making the national carrier a parastatal that would return it to its pre-privatisation status.
The 11 banks had protested the debt-to-equity conversion but lost a court case. The Government will have three seats on the KQ board while the KQ Lenders Company will have two seats.
Those that opposed the plan had reservations about the planned turnaround of the airline and instead wanted their money back.
The Government and the banks were owed about Sh50 billion by the airline. Following the conversion of these debts to equity, National Treasury and the banks have applied to the Capital Markets Authority to be exempted from making a takeover offer of the airline.
“Despite this significant increase, the Government has no intention to take over the airline… for this reason, we have made an application to the Capital Markets Authority to be exempted from takeover and merger rules as a clear statement of its intention not to take over control of the airline,” said Mr Rotich. The Government had given KQ an emergency loan of Sh4.24 billion in 2015 and Sh19.7 billion as bridging loan in 2016, bringing the Government loan to a total of about Sh24 billion.