How to nationalise Kenya Airways without buying it

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

04 Aug 2019

As I pointed out last week, I do not understand how anyone would buy shares in Kenya Airways: an insolvent company that is on the verge of collapse. You would have to pay me to accept them!

I still maintain that if the government wants to buy out the other shareholders of this company, it shouldn’t pay more than sh20 for the entire remaining 51 per cent. After all, it will be taking over massive loans and trading debts (unpaid invoices).

But is a government buyout the only way of nationalising the airline? No: There are other ways that should be considered.

One thing that is clear is that Kenya Airways desperately needs serious cash injection if it is going to have any chance of surviving. From a casual look at the publicly available financial reports, I think that at least Sh10 billion will be required within one year.

Instead of giving money to existing shareholders, the government can inject the cash into the airline and get additional shares in return. This way, the other private investors retain their shareholding albeit a smaller percentage than what they currently have.

The company has about 5.8 billion shares, out which, 2.8bn are owned by the government; 2.2bn by the KQ Lenders Company; 450 million by KLM the strategic partner; 140M by employees; and 162M by other private investors.

The company can offer all existing shareholders the right to buy additional shares at a “discount price” of, say Sh2.50. If they are offered one new share for each held, the potential amount to be raised would be about Sh15 billion (Sh2.50 x 5.8 billion shares).

Now from previous experience, it is very likely that only the government and KLM would participate in the offer. In 2012, such a deal was offered and only these two applied for full allotment. The others shied away – less than half of them too part.

With things where they are today, I foresee a similar situation. The banks don’t want more shares and neither do the employees. The other investors are just there for speculation purposes, hoping to make a quick kill.

So, the government and KLM may take up their full allotment of 3.25bn shares altogether, thus raising about Sh8billion. Then they can add another 800 million in equal portions (i.e. 400 million each) from the unsubscribed balance in order to hit the Sh10 billion capital target.

If it all works out, the total number of shares in the company would rise from the current 5.8bn to 8.8bn and the government would be left holding about 5bn of them, which is 57 per cent of the company. With that, the airline automatically becomes a parastatal and not a single cent goes to the speculators who have been waiting for a windfall!

What course of action is chosen, it must be done with the full knowledge that this is a strategic (or even, sentimental) decision, not a commercial one. It will take a few decades before KQ pays any cash dividends!