Billionaire businessman Mike Maina Kamau, the owner of Nairobi’s Marble Arch Hotel, invested more than Sh400 million in Kenya Airways over the past six years and is now staring at major losses after the value of his holdings dropped to just Sh40 million.
The 90 percent paper loss comes at a time when the airline’s financial position has deteriorated and the government plans to nationalize the company, with the price at which it will buy shares from minority investors like Mr Kamau yet to be determined.
Mr Kamau’s experience in KQ, as the national carrier is known by its international code, is the most extreme example of the losses minority shareholders have suffered in the Nairobi Securities Exchange-listed firm.
The businessman had bought eight million shares in the airline by March 2014 –its second year in its so-far unbroken loss-making streak when it has not paid dividends.
In that year, the company had more than halved its net loss to Sh3.3 billion from Sh7.8 billion in the preceding period.
KQ, however, reported a larger net loss of Sh25.7 billion in the year ended March 2015, setting a record in corporate Kenya at the time.
The company would shatter that record the next year with a net loss of Sh26.2 billion. All this time, Mr Kamau kept buying more shares, rising in the list of the company’s top shareholders where he has ranked as high as fourth place.
His ownership peaked in March 2017 when he held 64.3 million shares with a market value of Sh386 million.
Later that year, KQ took some decisions that would further erode the capital of retail investors.
In a bid to ease the airline’s massive debt burden, the government offered to convert its loans of Sh27.2 billion into shares and pressured 10 local banks including KCB and Equity to also take shares as settlement for their loans amounting to Sh22.7 billion.
These transactions would have seen the company issue new 28.4 billion ordinary shares which it deemed to be too many, depressing the airline’s market value.
“The board considers that this level of issued share capital is too high for the company’s current circumstances and, therefore, they propose to reduce the number of shares in issue after the restructuring by way of a share consolidation,” KQ said in a circular guiding the debt conversion.
The solution was to slash each investor’s number of shares by 75 per cent. The move ended up, for instance, reducing Mr Kamau’s holding from the previous 64 million shares to 16 million shares when the airline’s shares resumed trading on November 29, 2017.
The stock had been suspended for two weeks during which the company’s ownership structure was rearranged to give the banks a 38 percent stake and allow the government to raise its interest to 48.9 percent.
Even worse, KQ’s share price has dropped further to the current levels of Sh2.5, valuing Mr Kamau’s portfolio at Sh40 million. If his shares were not reduced, his paper wealth would stand at a much higher level of Sh160 million.
For minority investors who held shares prior to the airline’s debt-to-equity deals, breaking even means the share price rising to at least Sh21.2.
This implies a rally of more than 700 percent –in a bear market and for a loss-making company whose assets have been wiped out by years of losses.
Despite his large paper loss, Mr Kamau is one of the few retail investors who can handle the turbulent KQ trade with equanimity.
With a multi-billion-shilling fortune spread across various assets, he is not hurting for money. Besides the Marble Arch Hotel, Mr Kamau has multiple properties in Nairobi and has also dabbled in coffee farming.
Cognisant of the deep dilution small investors would be subjected to, the airline proposed to give them an opportunity to participate in a rights issue at a later date.
Shares are to be sold at a large discount to the level of Sh7.7 per share at which the banks acquired their stake.
There has been no movement on the rights issue but the crash in KQ’s share price may explain why the plan has hit a snag. Implementing a cash call under the current circumstances would likely push the share price below Sh2.
The airline had given its directors leeway to study market conditions and decide whether or not to go ahead with the rights issue.
“Given that a number of variables are still unknown, in particular, the market value of ordinary shares post-restructuring, the board considers it appropriate for it to be given the discretion to make the open offer and upon what terms to make such offer,” the company said in the circular.