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Treasury gives ailing KQ Sh26b in takeover plans

BUSINESS NEWS
By Dominic Omondi | February 12th 2021
A Kenya Airways plane taking off from Jomo Kenyatta international Airport(JKIA)in Nairobi, despite heavy loss-making in the market. [File, Standard]

The government will inject Sh26.5 billion into cash-strapped Kenya Airways (KQ) as part of its plan to nationalise the airline.

In a mini budget released this week, the National Treasury said the cash will be in the form of a shareholder convertible loan.

In total, Treasury has set aside Sh27 billion for strategic investments in public enterprises.

The remaining Sh500 million will go to the Agricultural Finance Corporation.

KQ’s recapitalisation will be a big win for banks which own about 38 per cent of the airline.

The shareholding was a result of their debt being converted into capital in 2017 as the carrier struggled to pay creditors.

The recapitalisation is one of Treasury’s key changes, which will also see Kenya Revenue Authority receive additional grants.

The government’s 48 per cent stake in KQ is shy of the 50 per cent that would make it a State corporation.

Treasury Cabinet Secretary Ukur Yatani, in the 2021 Draft Budget Policy Statement, said the government is developing strategies to improve operational efficiency at KQ to ensure it remains afloat.

“This will enhance regional integration and promote tourism and international trade which are key in supporting the manufacturing pillar of the Big Four Agenda,” said Yatani.

The State has also helped the national carrier to restructure a Sh20 billion loan from Afrexim Bank.

The loan was then refinanced by PTA Bank in June 2018, to be repaid in 10 equal semi-annual installments.

Conversion of KQ into a State corporation is part of the agenda this week.

The airline has been some turbulence, which worsened with the outbreak of the Covid-19 pandemic.

Loan guarantees

As at June 30, 2020 total outstanding government guaranteed debt was Sh160,453 million up from Sh154,802 million at the same time in 2019.

The increase was mainly attributed to drawdown of the guaranteed loans to Kenya Ports Authority and Kenya Airways.

The supplementary budget also set aside funds for the civil servants group personal accident insurance.

There will also be additional funding for the subscription to Shelter Afrique, a low-cost real estate lender, and operationalisation of the Kenya Mortgage Refinance Company.  

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