Kenya must first secure China’s approval before it can proceed with plans to issue a 15-year, Sh390 billion bond to finance the extension of the Standard Gauge Railway (SGR) from Naivasha to Malaba.
Treasury Cabinet Secretary John Mbadi said discussions are underway with China Exim Bank to waive a clause in the existing loan agreement that locks proceeds from the Railway Development Levy to repayment of debt incurred for the Mombasa to Naivasha stretch. Removing that restriction would allow the government to deploy the levy as security for a new bond intended to fund the Malaba extension.
Mbadi clarified that Kenya has not formally sought Chinese financing for the Naivasha to Malaba segment. Instead, the State is considering a securitised bond backed by the roughly Sh39 billion raised annually from the 1.5 percent import levy. Officials are weighing the possibility of issuing up to two bonds to mobilise about $3 billion, potentially making it the largest bond sale in Kenya’s history.
China, which has poured billions into infrastructure projects across developing economies under its Belt and Road Initiative, has recently scaled back lending to countries such as Kenya. That shift has forced Nairobi to explore alternatives, including tapping capital markets or seeking development finance institutions to bridge the funding gap.
Kenya previously borrowed Sh655 billion from the China Export-Import Bank to build the SGR from Mombasa to Nairobi and later to Naivasha. Last year, the Treasury restructured the facilities by converting dollar-denominated loans into yuan and extending the maturity of the longest tranche to 2040. Details of the renegotiation remain limited, with officials citing the sensitivity of government-to-government talks.
The government had briefly explored financing from the United Arab Emirates after Beijing appeared hesitant, before reviving engagement with China during President William Ruto’s visit last April. The current tilt towards a bond structure reflects China’s more cautious stance on fresh infrastructure lending.
Transport Cabinet Secretary Davies Chirchir has argued that while the Railway Development Levy is ring-fenced for rail construction, its cash flows alone are insufficient to fund the project within a short timeline. The State is therefore looking to leverage those revenues to secure long-term financing, potentially over 15 years.
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Securitisation, which packages projected future income streams into tradable securities, has already been used in the 15-year Linzi Asset-Backed Bond backed by collections from the Sports, Arts and Social Development Fund to finance Talanta Sports City Stadium. Authorities see the model as a way to ease pressure on Kenya’s rising external debt.
Meanwhile, the Kenya Roads Board has proposed reallocating part of the Road Maintenance Levy Fund to cushion investors in forthcoming bond issues. Fuel levies were raised in July 2024, with the additional collections helping service a Sh175 billion bond tied to pending bills.
With borrowing headroom narrowing, the government is increasingly leaning on private capital to push the SGR to Malaba, near the Ugandan border. The railway, conceived as part of the Belt and Road Initiative to link the port of Mombasa to landlocked neighbours, currently stops at Suswa, leaving the regional integration vision incomplete. Both Nairobi and Kampala are eager to move forward, but progress hinges on securing a viable financier.
