KRC shelves Sh17 billion bond issue

By James Anyanzwa

Government’s ambitious Sh17 billion bond plan to upgrade the Nairobi commuter rail system has failed.

Kenya Railway Corporation (KRC) suspended issuance of the debt instrument due to high interest rates and the confusion in the bond market that has seen foreign investors exit.

Mugo Kibati, Head of  Vision 2030, told Business Weekly that the Government is considering alternative financing options.

 “It doesn’t make sense to float a bond at 25 per cent interest rate,” said Kibati. “It is too expensive and we are going a different route.

The proceeds of the bond issue was meant to finance KRC plans to build a 7-km link from the capital’s airport to the city centre to help ease Nairobi’s infamous traffic jams.

Dubbed the metropolitan rail transport system, the project is part of KRC’s Railway Master Plan, which seeks to overhaul the entire rail transport system in the country by 2050.

The bond was expected to go to the market in the first three months of this year.  The issue had been targeted at both local and international investors. The shelving of the bond comes amid a crisis in the bond market after the Central Bank introduced a new trading system, which dealers consider to be incompatible with bond trading.

Dealers in fixed income securities are disgruntled with operations of the T24 Core banking solution whose implementation on April 2 has negatively impacted on bond delivery and settlement periods.

This mess the debt market jeopardises the Government’s efforts of borrowing from the domestic market through issuance of Treasury bills and bonds.

The Nairobi commuter rail project was to be fully financed by proceeds from the bond issue while the cost of purchasing train coaches estimated at between $120 million — $150 million would be incurred by the eventual operator of the system.