Investors Rally Behind Kenya Airways’ Comeback to Nairobi Stock Exchange
The recent re-entry of Kenya Airways into the Nairobi Securities Exchange this week has sparked a positive reaction among investors.
Trading resumed on Monday after a suspension of around four-and-a-half years, with shares of the national carrier initially climbing to Sh6 (4.6 US cents).
By the end of trading on Wednesday, the shares were valued at Sh4.76 (3.7 US cents) each, giving the airline a total market capitalization of Sh25.21 billion ($193.67m).
The initial trading suspension occurred in July 2020 after a governmental proposal aimed at nationalizing the airline emerged, as it struggled with soaring debts during the downturn in global air travel caused by the Covid-19 pandemic. At that time, shares were priced at Sh3.83 (3 US cents).
However, the nationalization initiative was retracted when the airline began demonstrating signs of recovery. In 2022, a change in government leadership resulted in significant policy revisions, with President William Ruto shifting strategies from nationalization to privatization. Such developments, combined with the airline’s recent return to profitability, have facilitated its relisting on the exchange this week.
“The trading suspension of Kenya Airways PLC shares was lifted due to the company’s recent favorable performance, which included a profitable quarter and the withdrawal of the National Aviation Management Bill 2020,” stated the NSE in a Monday announcement.
Profitability boosts sentiment
Analysts credit investors’ optimistic outlook for Kenya Airways’ stock to its recent financial results, indicating a turnaround after a prolonged sequence of losses and significant debts.
In the first half of the financial year ending June 30, 2024, the airline reported a profit after tax of Sh513m ($3.96m) — its first profit since 2013, after accounting for taxes and debt obligations.
During this timeframe, the airline’s revenue rose by 22% to Sh9bn ($69.5m), spurred by a 10% increase in passenger numbers, amounting to 2.54 million. The airline also executed a comprehensive turnaround strategy focused on reducing costs, expanding capacity, and reorganizing finances, resulting in a 22% drop in overhead costs and a significant decrease in debt, positively impacting its bottom line.
“We have aimed to strengthen our core operations, improve customer service, and seek new growth opportunities. This performance puts us in a strong position to tackle the challenges in the aviation industry and prepare for future expansion,” stated Allan Kilavuka, CEO of Kenya Airways, this past August.
Restructuring debts
Kenya Airways has faced financial difficulties for over a decade, which worsened notably in 2017 when the airline secured an $841.6m loan from the Export-Import Bank of the United States (EXIM). The loan, of which $525m was government-guaranteed, was intended to fund the acquisition of seven planes and a new engine as part of an expansion initiative.
However, the strengthening of the dollar against the shilling in subsequent years caused significant rises in financing costs for the dollar-denominated loan, pushing the airline deeper into debt.
In 2022, the Kenyan government intervened by assuming the debt, converting it to local currency, and restructuring the repayment terms, giving the airline vital relief.
Following the conversion of debt into equity, local commercial banks own roughly 38.1% of the airline. The Kenyan government holds the largest share at 48.9%, with KLM Royal Dutch Airlines owning 7.8% and minority investors accounting for 2.8%.
Search for strategic investor
While the reduction in debt and an emphasis on efficiency have enabled Kenya Airways to regain profitability, analysts caution that investors should remain aware of the risks linked to the airline’s negative book value, which indicates that the company’s liabilities exceed its assets.
“The improved turnaround of KQ (Kenya Airways) sets the stage for investors to anticipate recovery performance in the future. However, the primary challenge for the airline may be its negative book value, which could impede its bullish stock activities,” remarked Ronny Chokaa, an analyst at Capital A Investment Bank, as he shared insights with The Africa Report.
Kenya Airways last reported a negative book value of Sh123.6bn ($954m), illustrating the extensive ramifications of years of consecutive losses on its overall financial condition.
For a long time, the airline has been searching for a strategic investor to assist in its financial recovery, with the government showing readiness to relinquish ownership to a private entity that can restore the airline’s fortunes. Nevertheless, despite prior management claims that they were in the “final stages” of securing a strategic investor, the airline has yet to announce any such partnership.