New guidelines to help counties raise cash from capital markets
By Benard Sanga
| Aug 31st 2015 | 2 min read
The Capital Markets Authority (CMA) has advised county governments to raise money from the public through sale of bonds to finance major infrastructure projects.
CMA acting Chief Executive Paul Muthaura said with the commencement of new CMA guidelines next month, devolved governments will be able to issue infrastructure bonds.
Muthaura said guidelines to issue infrastructure bonds were ready and would soon be published to enable counties to structure asset-backed securities (ABS) to raise money from the capital markets.
He said past efforts by county governments to tap money to finance huge infrastructure projects from the bourse had been held back due to lack of clear guidelines.
He, however, reckons the new guidelines to be published before the end of next month would set clear a structure, which the counties would use to identify projects and based on the projected revenues from proposed projects, they will be able to borrow cheaply from the markets.
The guidelines, he said, will enable counties to easily float asset-backed securities or infrastructure bonds to finance mega projects.
“We have come up with detailed concept guidelines to be published and distributed to all the 47 counties by the end of the first quarter of this financial year. It will give guidance and clear structures for counties to follow,” explained Muthaura while speaking during a campaign on opportunities in capital markets organised by Kenya National Chamber of Commerce in Mombasa.
He said the new guidelines would enable counties to leverage on capital markets to finance huge projects like roads, bridges, sewerage, markets and even ports.
“Counties would be allowed to borrow in advance based on the estimated revenue the project would generate,” explained Muthaura, adding that amount raised would be based on recommendations from studies to be conducted by experts.
He said CMA has already visited 15 out of 47 counties in its efforts to deepen financial literacy and encourage county governments to take advantage of the numerous attractive financing opportunities available in capital markets.
He said counties’ past efforts to tap into the markets through issuance of infrastructure bonds have been subdued by restrictive laws that tie borrowing to approval from the county assembly and the national government, which acts as a guarantor.
CMA said it had reached an agreement with both the national government and county assemblies on how the devolved units can issue bonds using the new guidelines.
Muthaura said CMA was keen to partner with the county governments. “So far we have visited 17 counties in our quest to deepen participation in the capital markets across the country,” he said.
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