Once the last loose ends have been tied up, Kenya will be celebrating its largest debt and equity restructuring transaction yet: the record-breaking USD 2.2 billion restructuring of Kenya Airways PLC. This is according to the lead legal advisor on the transaction, pan-African law firm Bowmans.

“It is a privilege to be instrumental in delivering a solution that will safeguard the value of a Kenyan national asset and key player in the air transport sector in Africa,” says Richard Harney, managing partner of Bowmans Kenya, who is leading the legal team responsible for restructuring the balance sheet of Kenya Airways (KQ).

“This is the largest and most complex corporate transaction ever undertaken in the Kenyan market,” he says. Multiple shareholders and stakeholders need to be managed and catered for in the final structure.”

The restructuring plan received the green light from the Kenyan government in June this year, and shareholder approval followed at a special meeting in early August 2017. The airline is listed on the Nairobi, Dar es Salaam and Uganda securities exchanges and has over 76 000 shareholders, key ones being the Government of Kenya and KLM Royal Dutch Airlines.

The plan is expected to go through as soon as the last few legal issues have been ironed out, Harney says. “The transaction is being structured as a single inter-conditional deal requiring hundreds of legal documents to bring it to completion.”

Keeping KQ in the air

The restructuring of its balance sheet comes in the wake of considerable financial turbulence for KQ, which in 2016 was named Africa’s best airline.

“The transaction is critical to ensure the viability of KQ as a business,” says Harney. “Excess fleet capacity, structuring changes in the market and factors such as Ebola and international terrorism meant that the company’s fleet modernisation programme launched in 2012 had left it with too much debt, leading to several years of record losses.”

In essence, the restructuring plan converts USD 500 million of unsecured debt into equity and will result in huge liquidity savings from lessors and financiers for KQ’s fleet of 35 aircraft. The plan involves multiple stakeholders, including the Kenyan government, 11 Kenyan commercial banks, two syndicates of finance lessors for its fleet, numerous fleet operating lessors and KLM Royal Dutch Airlines. 

“We have been working successfully with KQ as the client, the international restructuring partners, all legal advisors and the Government and regulators,” Harney says. The latter include the Central Bank of Kenya and the Capital Markets Authority, with the aim of securing minority shareholders, stakeholder and public support. “The end result will be a commercially workable solution acceptable to all stakeholders.”

Some key elements of the transaction include:

  • converting USD 265 million Government loans to KQ into equity;
  • converting the USD 221 million Kenyan bank loans into equity;
  • securing USD 750 million of Government sovereign guarantees for some lenders;
  • in-kind contributions by KLM;
  • a USD 15 million open offer to the minority shareholders on the NSE;
  • developing an off-balance sheet SPV structure for the Kenyan banks;
  • advising on the new money facilities amounting to USD 175 million from certain Kenyan banks for KQ post-restructuring;
  • advising, documenting and implementing Kenya’s largest Scheme of Arrangement under the Companies Act 2015; and
  • successfully overcoming challenges to the Scheme in the High Court of Kenya.

“The transaction will deliver a restructured balance sheet for KQ and set the company on a better path to long-term business sustainability,” says Harney. “The Government’s support has been well received, and the commitment of multiple stakeholders is ensuring that Africa’s leading non-state-owned airline continues to be a leading player in air transport on the continent.”