InvestmentEconomyPolicy & GovernanceTaxationMPs Query Sh24 Billion Debt Swap Arrangement at KQ

Kennnedy MuturiFebruary 4, 20233726 min

The Treasury’s decision to convert a Sh24 billion government debt held by Kenya Airways into equity has been called into doubt by Parliament, alleging procedural problems.

The National Assembly’s Public Accounts Committee (PAC) has summoned Treasury Cabinet Secretary Ukur Yatani to provide information on the debt swap agreement and how the State’s stake in KQ was recorded in government accounts.


After the State and domestic lenders agreed to convert debt into equity, the Treasury acquired 19.1 per cent interest. KQ has not made a profit since 2014, and the losses have exacerbated the airline’s massive debts to purchase a fleet of new Boeing planes, pushing it into negative equity territory.

The Treasury has provided billions of shillings in bailouts to the loss-making national carrier over the years to keep it afloat and implement its turnaround strategy. KQ CEO Alan Kilavuka told the committee that the Cabinet approved the debt conversion in June 2017.

“Following Cabinet approval and the extraordinary shareholders general meeting held on August 7, 2017, to approve the restructuring of the debt and equity in KQ, the Government of Kenya (GOK) converted the complete debt/ loan to equity,” he explained.

According to Mr Kilavuka, the government also got a mandatory convertible note with a maturity date of 2027. “As a result of this, the government now owns 48.9 per cent of KQ.” As a result, there is no outstanding loan,” he stated.

PAC chairman Opiyo Wandayi, on the other hand, pressed KQ management to explain why the debt conversion was not recorded in the airline’s and the Treasury’s books. “How come this sum hasn’t appeared in your books or the Treasury’s financial statements?” “Why hasn’t the interest on this loan been disclosed?” He inquired.

Mr Kilavuka introduced a letter from the Treasury, dated June 30, 2017, written to former group managing director Sabastian Mikosz. According to the letter written by former Treasury PS Kamau Thugge, the Clerk of the National Assembly expressed the House’s consent for the government to guarantee $750 million (Sh75 billion) for the airline’s rehabilitation.

Dr Thugge notified KQ that the Cabinet, at its meeting on June 12, 2017, accepted the conversion to equity of the government’s existing debt totalling $243 million (Sh24 billion) plus accumulated interest under the restructuring’s consensual unconditional paradigm. “We confirm that the government plans to vote in favor of the conversion of its debt to equity in any Kenyan Scheme of Arrangement procedure that may be necessary to effect the capital optimization process,” Dr Thugge said, citing Cabinet consent.

Mr Kilavuka’s testimony was postponed awaiting summonses to Treasury Cabinet Secretary Ukur Yatani, Treasury Principal Secretary Julius Muia, and Cabinet Secretary Joseph Kinyua. In the financial year beginning July 2022, the Treasury plans to invest capital into Kenya Airways and Kenya Power, citing the two suffering firms’ importance in assisting the economy’s recovery from Covid knocks. No bailout funds were provided to the two companies in the current fiscal year, increasing fears that their worsening cash flow problems could harm operations and hinder economic recovery.

In the Budget Review and Outlook Paper (BROP), stakeholders criticized the Treasury last month for failing to outline a recovery plan for the distressed enterprises. They stated that Kenya Power and Kenya Airways were critical in “fueling economic growth and job creation” and should be supported through budget cash injections. In the final BROP report, the Treasury wrote, “This is carefully noted and will be done during sector allocations.”

Kennnedy Muturi

Ken is a Quantitative Trader with experience in investments, quantitative finance, financial modelling and algorithmic trading in Global Investable Markets (GIM). He enjoys using Bayesian Statistics, Time Series and Machine Learning in developing Robust consistent Alphas in Equities Market, FX, ETPs and Derivatives instruments. He enjoys deep dives in understanding High Frequency Trading infrastructures and improving how the African financial markets work. He holds a Bachelor's in Actuarial Science from Strathmore Institute of Mathematical Sciences : An Executive Program in Algorithmic Trading (EPAT) certificate in Algo Trading from QuantInsti : A current MSc student in Financial Engineering at World Quant University.

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