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Ex-KRA boss bets big on KQ with 1.1m share deal
- Michael Waweru is now the seventh-largest local individual shareholder of Kenya Airways, holding a stake valued at about Sh5.1 million at current market price.
- He joins billionaire investor Chris Kirubi who acquired 2.1 million shares of the NSE-listed firm in last August.
- Investors with knowledge of the government’s thinking like Mr Kirubi and Mr Waweru would be expected due to their high-level business and political connections to be better placed to decipher the carrier’s future prospects.
The former Kenya Revenue Authority (KRA) commissioner-general is now the seventh-largest local individual shareholder of the airline, holding a stake valued at about Sh5.1 million at current market price, according to the latest regulatory filings dated December.
He joins billionaire investor Chris Kirubi who acquired 2.1 million shares of the Nairobi Securities Exchange-listed firm in early August, days after it announced a record-setting net loss of Sh25.7 billion for the year ended March 2015.
The duo’s investment in KQ, as the airline is known by its international short code, comes at a time when the company is restructuring its operations and balance sheet in a bid to reverse losses that have wiped out shareholders’ wealth.
The firm recently hired advisory firm PJT Partners to help it explore options of raising an estimated Sh60 billion in new capital, including debt and equity.
The government, with a 29.8 per cent stake in KQ, is the single-largest investor and will play a major role in determining the airline’s future.
Investors with knowledge of the government’s thinking like Mr Kirubi and Mr Waweru would be expected due to their high-level business and political connections to be better placed to decipher the carrier’s future prospects.
Mr Kirubi has, however, sent mixed signals on KQ, which he has variously described as “hopeless” and also “potentially viable.” He has maintained that he bought KQ’s shares primarily to demonstrate his patriotism, with expectations of little to zero returns in the near future.
Mr Waweru, who was unavailable for comment, was the KRA chief between 2003 and 2012.
The KQ investment has expanded his interests at the Nairobi bourse, where his known holdings have been concentrated in investment firm TransCentury and its subsidiary East African Cables(EAC).
Mr Waweru is the second-largest investor in TransCentury with a 7.57 per cent stake. TransCentury, like KQ, also faces a bleak future as the investment firm faces the repayment of an Sh8 billion bond next month with no cash in hand.
TransCentury has, however, maintained that it will not default, implying that it expects to secure funds for repayment or is renegotiating with the bondholders for a restructuring or roll over of the debt.
Mr Waweru is also a significant shareholder in EAC, with a 0.3 per cent equity stake. Mr Waweru and Mr Kirubi, like other KQ shareholders, stand to reap or lose big depending on the extent to which the airline can pull out of its current problems.
The company has started dismantling its ambitious expansion strategy dubbed Project Mawingu that saw it take huge debts to finance the acquisition of new aircraft, which in the end led to expensive over-capacity.
KQ had expected the aggressive acquisition of new aircraft, including Dreamliners, to grow its route network from its Nairobi hub and ultimately grow revenues to pay off the debt and earn it a profit.
The strategy has, however, met stiff competition from the Middle East carriers besides Kenya’s depressed tourism industry on which KQ has relied for inbound passengers.
The airline is now selling some of its aircraft among other assets like land holdings.
KQ’s debt binge saw its total liabilities surge to Sh209.8 billion in the half year ended September, leaving its shareholders under water by Sh33.8 billion as total assets trailed at Sh176 billion.
Viewed against fundamentals, KQ’s current share price of Sh4.3 represents a major premium on the negative equity of Sh23 per share.
The airline is not expected to pay dividends any time soon, with the process of rebuilding its equity likely to take years as its net losses widened to Sh11.9 billion in the half year ended September from Sh10.4 billion a year earlier.
The upcoming new round of equity financing could also see the government’s ownership in KQ go above 50 per cent from the current level, significantly diluting other shareholders.
This, analysts say, is based on the expectation that retail investors would avoid pumping new money into the airline having booked major capital losses besides missing out on dividends in recent years.
Wealthy investors like Mr Kirubi and Mr Waweru are, however, in a position to maintain or increase their ownership in the airline betting on making a profit in the long term.
Other investors could be buying KQ’s shares for speculation, seeking short-term capital gains should a turnaround plan excite newcomers and lead to a rally in the share price.
Local individuals have been the net buyers of KQ’s shares, raising their combined holdings nearly four percentage points to 19.4 per cent in the seven months to December.
