A consortium of commercial banks in Kenya is set to convert KES19.3 billion shillings (USD150 million) in loans to Kenya Airways (KQ, Nairobi Jomo Kenyatta) into Treasury bonds after the debt clearance deadline passed at the end of August. The new arrangement aims to ease the airline's debt burden and improve its financial standing as part of a broader strategy to attract a strategic investor, Kenya's Business Daily newspaper reported.

According to a Treasury document obtained by the newspaper, the ten banks (KQ Lenders) that own 38.1% of the airline, including Equity Bank, KCB Group, and Cooperative Bank, have been offered a 6.5-year bond at an undisclosed interest rate.

The government had guaranteed the loan and was required to either settle it in cash by the end of August or provide an acceptable government security instrument.

Despite reporting its first half-year profit in over a decade, Kenya Airways still faces significant negative equity, amounting to KES123.6 billion (USD958 million) due to accumulated debts.

Following a November 2022 restructuring, the current shareholding structure sees the government holding 48.9%, the KQ Lenders 38.1%, KLM Royal Dutch Airlines 7.8%, minority shareholders 2.8% (75,000 individuals who obtained their shares via the Nairobi Securities Exchange), and the Employee Share Ownership Plan (ESOP) 2.4%. The KQ Lenders acquired their current stake in the airline by converting their loans into equity in support of the airline's 2017 restructuring plan.

Meanwhile, Kenya's Public Debt and Privatisation Committee recently questioned the Treasury over the government's privatisation programme for the 2023/24 and 2024/25 financial years. Committee members took issue with the costs and risks of Kenya Airways' loans guaranteed by the government.

According to National Treasury principal secretary Chris Kiptoo, Kenya Airways took a loan of USD924,232,675 in 2014 through Tsavo Aircraft Financing LLC, a special purpose vehicle (SPV) established to finance aircraft acquisitions. This SPV was created by a consortium of banks, including JP Morgan Chase Bank, Citibank, and Afreximbank, to support the airline in acquiring six B787-8s, one B777-300ER, and one General Electric engine.

"KQ serviced the loan up to 2017, when it started facing financial constraints and initiated a restructuring of the facility. The company then continued servicing the loan until early 2020 when it faced financial constraints with the onset of Covid-19, and it sought a moratorium which expired in 2022, thus seeking the government of Kenya's support," he explained.