To nationalise KQ, govt should pay only Sh20 for 51% of airline!

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

28 July 2019

Ever since Kenya Airways made a loss of Sh26 billion in 2015, its financial position was totally ruined – dare I say, beyond repair. That single result, threw the company into insolvency to the tune of Sh6 billion. In other words, if all its assets were sold at fair value at that time, the money raised (Sh182 billion at the time) would not have been enough to pay the debts it owed (Sh188 billion).

Over the last four years, the company has continued making losses and these have now accumulated to Sh61 billion. In 2017, an attempt was made to clean up the books of the company by converting Sh50 billion loans into shares but this did not help matters.

The airline became solvent for a few months but quickly slipped back into insolvency. By the close of 2018, its liabilities exceeded its assets by Sh2.5 billion. Indeed, the situation is so dire that the external auditors warned that “a material uncertainty exists that may cast significant doubt on the Group’s and Company’s ability to continue as a going concern”.

With this kind of background, a few questions keep disturbing my mind. First: why haven’t the Capital Markets Authority and the Nairobi Securities Exchange suspended the trading of Kenya Airways shares?

Secondly; the company’s current assets (money it expected to receive within 12 months) were Sh28 billion while its current liabilities (payments it needed to make in 12 months) were Sh129 billion – a shortfall of over Sh100 billion. Why would anyone lend more money to such a business?

Thirdly, this is an insolvent company that doesn’t own any special assets (say, unique licences or land with diamonds underground!); it has more than Sh61 billion of accumulated losses (thus, it is unlikely to pay any dividends in the next 20 or so years). So, why are its shares trading at such a high price (Sh4.90 at the time of writing this)?

I suspect that there are some people holding large numbers of shares who are busy keeping the price at a high level in order to make a kill if the company is nationalised.

You see, to buy them out, the government would have to pay fair market value for the shares. For listed companies is usually based on the average trading price. In this case, about Sh4.70.

But, in all honesty, is that the fair value of Kenya Airways? The financial statements give a very different story.

In my view, if we must nationalise Kenya Airways, the government should buy out all other shareholders in the same manner that it bought the nine banks that eventually created Consolidated Bank of Kenya in 1989. Each of these insolvent banks was bought at Sh20. Not Sh20 per share but Sh20 for the entire bank!

In the same fashion, government should pay jus Sh20 for the entire 51 percent of Kenya Airways that is in private hands. Any other price would be a rip-off!