“The financial position of the company has been a cause for concern for some time and in its current form is unsustainable..."
The financially embattled Kenyan national flier has convened an extraordinary general meeting in August for shareholders to approve a new optimization plan which includes converting debts worth $459m (about sh1.7 trillion) to equity.
Kenya Airways is cross listed on the Uganda Securities Exchange (USE) and trades under the initials, KA. Its shares dropped from sh174.98 per share on Tuesday to sh168.10 as the company’s future prospects remain unclear.
The company registered a rare profit in the 2016/17 of Ksh0.9b (Ush 31b) up from a record Ksh4.4b loss the previous year.
According to a statement in the New Vision newspaper, the new plan includes splitting each share worth Ksh5 (or Ush173.19) into 20 shares of Ksh0.25 value each.
This will enable the government of Kenya and some 11 banks to swap their debts to equity.
The Kenyan flier currently owes the government a debt of $238m, while the banks are owed $221m.
Michael Joseph, the Kenya Airways chairman also noted in the statement that the flier is set to borrow a fresh $175m in addition to acquiring government credit guarantees for an additional $750m to keep the company in the air.
“The financial position of the company has been a cause for concern for some time and in its current form is unsustainable. The Board has ….concluded that the transaction represented the best outcome and should, if successfully implemented, avoid insolvency and closure of the airline,” Joseph said.
“As a result of the transaction, current shareholders will be significantly diluted via conversion of existing indebtedness into equity. Despite this, the Board believes that there are benefits to shareholders in supporting the transaction, when compared to the alternative outcomes for the business including if the company were to fail,” he added.
Joseph said the plan had been secured with the blessings of its principal shareholders - Kenya’s National Treasury with a 29.8% stake and Dutch airline KLM, which owns 26.73% shareholding.
In a related development, the company appointed Sebastian Mikosz, a former chief executive of Lot Airlines, the Polish flag carrier as its new managing director after Mbuvi Ngunze, stood down following a strike by pilots.