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Banks That Swapped Kenya Airways Debt Into Shares Lose Out

A group of lenders who swapped Kenya Airways Plc debt into shares almost two years ago betting on a turnaround can’t seem to catch a break, Bloomberg reports.

Just this month, shares of the carrier have fallen 19% to 2.80 shillings by close of Thursday’s trade, 64% below the price Equity Group Holdings Plc, KCB Group Ltd. and nine other banks swapped debt for shares. The selloff intensified when lawmakers adopted a proposal for the government to nationalize the airline with no clarity on a buyout price.

The lenders control 38.1% of Kenya Airways, which is reeling from losses it blames on not being as competitive as state-owned rivals like Ethiopian Airlines and Emirates Airline. The debt-equity swap was part of a move to boost the carrier’s liquidity and help return it to profitability.The situation worsened when in June lawmakers rejected a bid by the carrier to help run the nation’s biggest airport. The stock is down 69% this year, the worst performance on the Nairobi Securities Exchange.

“The outlook is generally negative to any speculative investor,” said Eric Musau, head of research at Nairobi-based Standard Investment Bank. “It’s unlikely there’ll be any substantial premium at this point. Even if the nationalization does not happen immediately, you’re not looking at dividends being paid in the foreseeable future.”

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