City County steps up plans for Sh17b infrastructure bond

Nairobi Governor Johnson Sakaja is pushing for policy change to enable counties to borrow above the current limit of 20 per cent of their audited annual revenues for development projects.  

The cash-strapped city county has been laying the groundwork for the issuance of an infrastructure bond, seeking to raise at least Sh17 billion, Mr Sakaja said. 

“We need about Sh17 billion to address the sewerage situation and expand the water pipes to meet Nairobi’s growing population,” he said in a statement after a meeting with representatives of the Capital Markets Authority (CMA) on Tuesday. 

“The county cannot raise these funds from conventional sources such as banks or even from its own revenue thus, the capital markets offer an affordable and long-term solution.” The Constitution allows counties to borrow from the capital markets and foreign sources once cleared by the National Treasury.

The law requires Treasury to guarantee devolved units to raise cash from investors upon meeting stringent conditions. 

Counties must, for instance, raise at least 15 per cent of project funds from internally generated resources before the national government can guarantee their borrowing, Treasury rules say. 

External markets

Since March 2020, Makueni, Kisumu, Bungoma and Laikipia counties have been adjudged fit to borrow through the Nairobi Securities Exchange and external markets. 

Laikipia floated a Sh1.16 billion infrastructure bond last year. CMA this week backed the push by more county governments to borrow from the capital markets. 

“The Authority will support the Nairobi County Government to raise funds through the capital markets,” said CMA Chief Executive Wyckliffe Shamiah in a statement. 

“However, it will be important for the county to demonstrate good governance through the prudent application of funds raised to give confidence to investors for future county capital raising exercises.” 

Stringent conditions for devolved units are aimed at curtailing reckless borrowing.

Counties are also assessed on their loan repaying ability over the medium term, meaning counties that are in the red are blacklisted from external borrowing.