Kenya Airways #ticker:KQ has revealed the terms of an Sh11 billion loan it took from the government in the year ended December to fund its operations at a time the Covid-19 pandemic had hurt its cash flows.
The airline took the debt in two tranches of Sh5 billion followed by Sh6 billion.
The Sh5 billion loan has a concessional interest rate of three percent per annum – less than a quarter of the rate charged by commercial banks — and matures in five years.
The carrier will pay an interest of Sh150 million per year on the loan or a total of Sh750 million over the five years. The repayment of the principal is expected at the end of the five years.
A loan of a similar size would cost Sh650 million per annum or a total of Sh3.2 billion in five years based on the 13 percent interest rate currently charged by most commercial banks.
“The first loan of Sh5 billion was to facilitate E-190 aircraft fleet engine overhauls that were due in 2020,” the national carrier says in its latest annual report.
“As part of government commitments to support the airline’s resumption of operations following the impact of Covid-19 pandemic, a second loan of Sh6 billion was advanced in the year and its terms are yet to be finalised.”
The government was the only entity that provided new loans to the company in the review period, indicating the critical role the State has played in keeping the airline alive.
KQ, as the airline is known by its international code, previously borrowed liberally from international financiers and nearly all of the country’s leading banks, including KCB Group and Equity Group.
The airline, however, defaulted on the local lenders who now only maintain a revolving credit facility agreed with the company earlier as part of the restructure of their combined Sh17 billion worth of unsecured loans in 2017.
International lenders like JP Morgan and Citibank have secured their loans using the aircraft purchased by the company.The heavy losses and revenue dip caused the company to breach the terms set by the global financiers, underlining the airline’s debt distress.“As at December 31, 2020, the group did not comply with one of the financial covenants being the unrestricted cash to revenue ratio,” KQ says in the report.“The group and company however obtained waivers from the financiers prior to year-end and as such the group and company had a contractual right to […]