National carrier Kenya Airways (KQ) owes Tsavo Lenders Sh120.15 billion ($924,232,675), a parliamentary committee has been told. Tsavo Lenders lent KQ the money to buy planes.
Treasury Principal Secretary Chris Kiptoo on Wednesday told the National Assembly's Committee on Public Debt and Privatisation that Kenya Airways entered into a $924,232,675 loan agreement with Tsavo Lenders on March 26, 2014 for the procurement of six Boeing 787-8 aircraft, one Genx engine and one B777-300ER through the Tsavo Financing Facility.
“Tsavo Financing Facility comprises a senior facility and a junior facility. The senior facility totalled $841,645,781 financed by Citibank N. A, and J. P Morgan (later novated to Premier Export Funding Corporation who were guaranteed by the US Exim Bank,” Dr Kiptoo told MPs.
“The junior facility totalled $82,586,894 financed by Afrieximbank... It (KQ) started facing financial constraints and initiated a restructuring of the facility in November, 2017.”
Dr Kiptoo said at the time of the restructuring, the outstanding debt under the facility was $645,286,493, divided into $600,278,983 under the senior facility and $45,007,510 under the junior facility.
He said as a condition precedent to the restructuring of the senior facility, the US Exim Bank approached the Government of Kenya which accepted and issued a government guarantee of $525 million.
The guarantee was issued on November 14, 2017 and executed by the National Treasury Cabinet Secretary and the Deputy President of the US Exim Bank.
Dr Kiptoo said KQ continued to service the restructured debt until early 2020 when it faced financial constraints with the onset of the Covid-19 pandemic.
He said the company sought a moratorium from the lenders, which was granted until March 2022.
“The company, however, could not service the debt upon expiry of the moratorium due to the impact of the pandemic and sought GOK’s support,” Dr Kiptoo said.
As a result, the company sought aircraft lease rentals and loan repayment moratoria from lessors and lenders and the same was granted, he said.
Dr Kiptoo said the government, with the approval from the Cabinet, on January 26, 2022, recommended novation of the payment obligation from the KQ to the government for guaranteed senior debt whose outstanding balance then was $485,465,172.
On April 4, 2022, the US Exim Bank submitted a demand notice for full payment of basic rent and principal and all accrued interest due from the government of Kenya for the Tsavo Senior loan.
Dr Kiptoo said KQ had failed to make the scheduled payment of principal and interest resulting in an Event Default.
“The government as a guarantor took over the servicing of the outstanding loan balance from October 2022,” Dr Kiptoo told the committee chaired by Balambala MP Abdi Shurie.
“The partners to the Tsavo Senior Facility completed novation of the Payment Obligations from the company to GOK in October 2023 with GOK through the CS National Treasury providing consent.”
Dr Kiptoo said the National Treasury is in the process of drafting the Shareholder Loan Agreement for the Novated Loan with Kenya Airways and that there is no Kenya Airways Guaranteed Novation Agreement in place.
He said the government Shareholder Loan Agreement will set out the terms and conditions for Kenya Airways PLC's loan repayment.
The PS said the parties to the agreement are the National Treasury Cabinet Secretary, the KQ Chief Executive Officer, and the KQ Company Secretary.
He said the government could face additional costs in the repayment of the debt given the currency fluctuations.
