KQ taps global deal maker to help raise capital

Paul J Taubman

Kenya Airways has appointed one of the World’s most established deal makers to arrange how the airline will raise additional capital.

PJT Partners, the New York-based advisory named after founder and investment banker Paul J Taubman, has been commissioned to help the company on its turnaround strategy that involves restructuring operations and fresh capital injection.

PJT Partners’ mandate would run alongside Deloitte – another American firm but with operations in Kenya, which was called in last week to carry out a forensic audit expected to unearth the weaknesses that plunged the airline into technical insolvency.

KQ Chief Executive Mbuvi Nguze said the advisory firm will report its recommendations by November 2016.

“PJT Partners is a leading international investment banking firm with strategic airline advisory expertise necessary to counsel on Kenya Airways’s balance sheet restructuring as well as capital raising. Their main business lines are on strategic advisory, restructuring as well as fund placement services,” Mr Ngunze said.

Costs due to the two advisory firms were not immediately made public, but they could be significant given their respective profiles and the portfolio of completed assignments.

Initial estimates place KQ’s capitalisation needs at an additional Sh60 billion that would go to repair the balance sheet and provide working capital.

“We are at a stage where our turnaround strategy is beginning to gain traction. Over the next six to nine months, we will work with PJT Partners and they will be instrumental in assisting the airline secure its future beyond the turnaround,” said Ngunze adding, “The Board is confident that they are the right choice.”

Among PJT’s biggest deals is the Sh13 trillion-worth transaction involving the acquisition of a 45 per cent stake held by Vodafone in Verizon Wireless by Verizon Communications, two years ago.

The airline has been specific that only long-term sources of finance would be sufficient for its turnaround, indicating that equity injection from a strategic partner or the existing shareholders as the preferred avenues.

Fuel hedging

But the airline’s largest shareholder, the Government of Kenya, has indicated its demands before extending a bailout, which include more control of how the company is run.

That proposition by the Government put off prospective strategic investors, especially considering that an existing partnership with Air France-KLM has been blamed for KQ’s losses.

Martin Gudgeon, the head of restructuring at PJT Partners said, “We look forward to helping Kenya Airways reshape and recapitalise its balance sheet to ensure the company’s full potential is realised.”

In the recent weeks, KQ has fired its long-serving Finance Director Alex Mbugua – who managed the airline’s cash when it made two costly mistakes relating to ‘unsustainable’ fleet expansion and fuel hedging gone wrong. The airline requires at least Sh60 billion from its shareholders.