International Finance Corporation (IFC) commits USD105 million for Kenya Airways Expansion

1-April-2012

The World Bank’s private sector lending arm, IFC, has committed Sh8.7 billion ($105 million) in equity and debt to Kenya Airways’ expansion plans, part of which will include the purchase of shares worth Sh2.1 billion in the rights issue that opens today.


The national carrier’s chief executive, Titus Naikuni, said on Friday the International Finance Corporation (IFC) had committed to take up $25 million (approximately Sh2.068 billion) worth of shares in the issue and had approved an additional Sh6.6 billion ($80 million) in debt to fund KQ’s expansion plans.

Citigroup is also underwriting Sh420 million of the Sh20.6 billion rights issue, the region’s largest ever cash call.

On Thursday Dyer and Blair Investment Bank quoted Mr Naikuni as saying Kenya Airways (KQ) had received investor commitments of up to 70 per cent of the share sale.

“We expect Kenyans to support us,” said Mr Naikuni on Friday during the launch of the share sale.

The government and dutch airline KLM, who are anchor shareholders of the national carrier with a combined 49 per cent stake, have already committed to take up their rights.

KLM and the government own 26 and 23 per cent of the airline respectively.

IFC’s commitment to purchase the KQ rights is expected to boost the subscription rate. The airline is seeking funds to finance acquisition of aircraft that will help build its existing fleet in 2014.

Citigroup has signed to take up to Sh420 million of the rights or two per cent of the total amount the airline is seeking, according to the information memorandum released last Friday.

“The underwriter will only be underwriting a maximum of Sh420 million under the rights issue,” notes the information memorandum, which also points out that underwriting fees to Citigroup will only be to a maximum of Sh47.645 million ($575,000).



President Mwai Kibaki, who presided over the launch ceremony, said the government and other Kenyan investors own 60 per cent of the shares and so they will have first right to take up 886 million out of the 1.4 billion shares on offer.

The KQ share price has been volatile at the Nairobi Securities Exchange (NSE) over the past two weeks, sometimes slipping below the Sh14 offer price.
Investors will purchase 16 new shares for every five that they already own.

The last day to renounce the rights is April 10, after which investors can start trading them on the three stock exchanges through to April 18.

The new shares which have been taken up by investors will start trading at the NSE, Uganda Securities Exchange and Dar es Salaam Stock Exchange on June 12.

Over the past two weeks, KQ’s share price has slipped below the discounted rights issue price at the NSE, dropping to as low as Sh12.55 making it more attractive for investors to buy the stock in the open market.

But mid last week, the share price rose to an average of Sh14 and closed at an average of Sh13.95 on Friday, with 936,300 shares changing hands during the week.


Eric Musau, a research analyst said that the government was also supporting the long term growth prospects of East Africa’s largest carrier by committing to complete infrastructure projects that include a new terminal at Jomo Kenyatta International Airport by August this year, a move that is expected to boost passenger volume favouring KQ.

The airline will this morning announce the engine that will power its nine Boeing 787s, the Dreamliners, expected to be either the Rolls-Royce, the General Electric’s, or both.

Boeing selected the two companies as engine partners for its 787 series in 2004. The Rolls Royce Trent 1000 and GEnx have a standard interface, allowing the plane to be powered by either of the engines.

Kenya Airways has an order for nine Dreamliners, and an option for four more which will replace the airline’s ageing fleet and enable it expand to new markets as well as increase frequencies on lucrative routes.

The 787 is part of the airline’s expansion plans that will see it increase its fleet form the current 34 aircraft to 68 by 2016 and 119 by 2022, while increasing its destinations from 56 to 115 during the same period.

Kenya Airways’ Boeing 767’s and Embraer’s are powered by General Electric while 777 have the Rolls-Royce Trent 800 engines. CFM International, a 50-50 joint owned company of SNECMA of France and GE, power the Boeing 737s.

By David Mugwe and Wangui Maina : Business Daily