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KQ puts Sh3bn prime Embakasi land up for sale

Kenya Airways has put a 30-acre prime piece of land in Embakasi, Nairobi, up for sale in a real estate transaction that could see the loss-making airline book a gain of as much as Sh3 billion.

The airline has invited bids for two parcels of land opposite its training school — a 24.71 acre piece of land that was previously a warehouse yard and another 5.56 acres of land which is undeveloped.

The two adjacent plots are situated opposite the national carrier’s training school in Embakasi in an area where the market price of an acre of land is between Sh80 million and Sh100 million.

“The (24.71-acre) property is developed with purpose-built, highly specialised warehouse and heavy-duty reinforced concrete yards. The total built up area is approximately 246,000 square feet excluding the yards,” said a notice announcing the sale.

“A vacant plot (of 5.56 acres) has been excavated, backfilled and compacted ready for development.”

KQ’s investment in freehold land and buildings as at March 2014 was valued at Sh7.05 billion, according to the airline’s latest annual report.

This amount represented a doubling from the Sh3.5 billion which KQ owned as at the end of March 2012.
Lloyd Masika, the valuation and estate agent, is handling the transaction.

“The deadline for the receipt of bids shall be on or before the close of business on February 15, 2015,” reads the notice.

SH10 BILLION LOSS

Kenya Airways has put the property up for sale just two months after it announced a tax loss of Sh10.4 billion for the six months to September.

The firm’s management also issued a profit warning for the year ending March 2015, meaning that KQ is expected to close the year at a loss of at least Sh4.3 billion on dampened passenger numbers due to suspension of flights to Ebola-hit Sierra Leone and Liberia and insecurity at the Coast.

This slowdown in business saw them report a small 4.4 per cent increase in revenue to Sh56.7 billion compared to Sh54.3 billion posted during a similar period last year.

Chief executive Mbuvi Ngunze, during release of the airline’s half year results in November, said KQ had hired a financial adviser to restructure the firm’s debts as the company sought to get back to profitability.

The consultant was specifically brought on board to evaluate the airline’s balance sheet, with emphasis on renegotiating the maturity of outstanding loans since repayment of short-term obligations was straining cash flows.

“The board has retained the services of a financial adviser to help re-balance our demand for cash and buy us time to drive the sales we need,” Mr Ngunze said when releasing the half-year results.

It is not clear if sale of the Embakasi land is a recommendation of the financial adviser, but the proceeds of the transaction could offer KQ’s finances a major boost.

INJECT CASH

Citigroup recently noted that the carrier needs to inject additional cash or restructure its capital in order to pull out of the current financial pit.

Some of the restructuring options given to the airline by the global investment bank include seeking financial aid from the government, conducting a second rights issue, disposing of assets and reviewing pending purchase of new planes.

“Poor operating cash flow increases the need for a capital restructuring and or increase to meet its substantial capital expenditure commitments,” said Citigroup analysts in a note to international investors.