NAIROBI, Shareholders of Kenya Airways have approved a balance sheet restructuring plan which creates new shares and converts debt into equity/

Chairman Michael Joseph told shareholders at the extraordinary general meeting (EGM) here Monday that the plan was essential for the indebted carrier (KQ) to continue operating and return to profit.

KQ has reported net losses in recent years although it narrowed its net loss for the 12 months to March this year by 60.9 per cent to 10.2 billion shillings (about 982 million US dollars).

In its bid to return to profitability, the Kenyan Treasury proposed a deal which would enable its creditors to own a stake in the airline through the conversion of debt into equity. This saw the 11 banks owed by KQ last week agreeing to the deal to have their combined 50.2 billion shillings of debt converted to shares.

On Monday, the existing shareholders voted on the proposal at the EGM to allow the creditors, who hold at least 75 per cent of the unsecured debt, to own a stake in the national airline.

The banks, which include Equity, KCB, Commercial Bank of Africa and Co-operative Bank, will form a new special purpose vehicle through which they will own shares in the national carrier. Jamii Bora, I and M Bank, NIC Bank and Ecobank, Chase Bank, National Bank and Diamond Trust Bank are the other lenders which have outstanding loans with the airline.

However, if KQ’s share price will not have risen sufficiently to cover the bank’s exposure by the year 2027, the government has guaranteed to step in and pay these local banks a lump sum of 7.7 billion shillings.

KQ’s management recently negotiated with both sets of lenders to sign off on concessions, including extending loan tenures to bring down interest payable per cycles. KLM, the other major shareholder, is expected to inject at least 10.3 billion shillings into KQ.