State clears half of Kenya Airways' guaranteed debt

 

The Treasury has now cleared more than half of Kenya Airways' guaranteed debt with a fresh Sh6.9 billion payment in the quarter that ended in December.

The latest payment means that the Treasury has offset Sh53.7 billion out of a Sh69.9 billion KQ debt it took over last year as part of a wider strategy to restructure the operations of the national carrier.

The loan was tapped from the USA Export-Import Bank (EXIM) in 2017.

“During the quarter ending December 2023, the national government paid Sh6.9 billion in guaranteed debt on behalf of Kenya Airways. The payments consisted of Sh5.5 billion as principal payments and Sh1.4 billion as interest,” the Treasury indicated.

In six months of operations to the end of June, KQ reported an operating profit but remained in loss territory due to the exchange rate depreciation.

The national carrier has a moratorium on debt service for the amount owed to the government including the novated debt. At the end of June last year, KQ had total outstanding liabilities of Sh302 billion including outstanding claims by the government on account of its past and ongoing support.

Of the arrears, Sh177 billion relates to long-term liabilities while short-term liabilities at the end of the period amounted to Sh125 billion; comprising 14 percent fuel, 39 percent landing fees, 16 percent leases, 13 percent payroll, and 17 percent taxes and statutory dues.

The company was in a negative equity position of Sh133 billion at the end of the six-month review period.

According to the IMF, a detailed business restructuring action plan prepared in May 2022 has remained on hold as authorities assess the least-coach approach for the budget.

“The government in November 2022 directed the Ministry of Roads and Transport, and the National Treasury to review the current and other restructuring strategies for KQ and recommend the optimal strategy with the least fiscal impact to the government. A draft Cabinet Memorandum with strategic options and recommendations was submitted for further discussions,” the IMF indicated in a January report.

Upon a Cabinet decision expected in April this year, a new plan is expected to be implemented and financial resources committed if needed without compromising the path to fiscal consolidation.

The government has at present limited financial support for payments under the guaranteed senior external debt.

KQ is expected to onboard a consultant to support the onboarding of an equity investor who can inject capital into the business.

The procurement of the consultant was expected to be completed at the end of December 2023.

Alternatively, the government is exploring privatization as a means to anchor the operations of the airline.

“In the parallel measure, the government is also exploring a privatization mechanism where some target companies are consolidated, and a fund is set up to manage them. Such a model has sufficiently worked in Romania, and we are engaging the consultants who delivered on the model to advise on the same,” the IMF report added.

“The model of the fund is meant to package both profit-making and loss-making entities hence sharing an interest in the unattractive companies in pursuit of the attractive ones by investors.”

A decision on the consultation is expected to be made by the end of June 2024.

By KEPHA MUIRURI