Roads agency seeks Sh50bn from asset-backed bond

The Kenya Roads Board (KRB) plans to float the region’s first asset-backed infrastructure bond in the second half of this year to raise Sh50 billion to fund road maintenance.

The roads agency has already received interim approval from the Treasury to issue an asset-backed security at the Nairobi Securities Exchange, highlighting Jubilee Coalition’s policy of mobilising long-term funds through the securities market.

The KRB said the bond, to be issued in three tranches, would be backed by earnings from the road maintenance levy fund, which it collects at the rate of Sh9 per litre of diesel and petrol.

“We’ll securitise the fuel levy so we will be paying back the infrastructure bond from collections. The funds will help address the backlog of road maintenance,” said Jacob Ruwa, executive director of the KRB in an interview with the Business Daily.

“We have received an approval in principle for the infrastructure bond. We are now awaiting final approval.”

The roads agency said the asset-backed bond would help clear a backlog of road maintenance estimated at Sh400 billion, which has piled up due to constant underfunding of the sector.

Kenyans consumed 3.1 billion litres of diesel and petrol in the fiscal year ended June 2014, which saw collections from the fuel levy hit Sh28 billion.

But this falls short of the Sh50 billion needed annually by the KRB to develop, rehabilitate and maintain Kenya’s road network of 161,451 kilometres — of which only 14,561 kilometres is paved.

The roads agency blames the backlog on the fact that the fuel levy, which has remained at Sh9 a litre since 2006, is no longer adequate given the rise in raw materials, labour and transport costs which has impacted on the cost of road maintenance.

READ: Roads board pushes for new fuel tax to fund highway repairs

The first Sh10 billion tranche of the 10-year bond is set for the new fiscal year beginning July, with two other tranches of Sh20 billion being floated in subsequent intervals, Mr Ruwa said.

The KRB has prepared a draft information memorandum for the infrastructure bond and the agency has already undergone credit rating.

“We’ve done the preparatory works and we need three to four months once we get the approval anytime from now,” he said.

President Uhuru Kenyatta has been keen to tap the securities market to raise cash to finance infrastructure projects and State agencies appear to have taken cue.

Kenya, issued a $2 billion (Sh183 billion) Eurobond last June, an offer which was massively oversubscribed.

State-owned National Housing Corporation is gearing up to listing a Sh5 billion housing bond in June, meant to double the agency’s annual housing output.

The Kenya Electricity Generating Company had in 2013 planned to use asset-backed securities to raise funds to finance its geothermal expansion plans, but shelved the idea in favour of a rights issue and concessional loans.

The KRB says the planned asset-back security is part of a multi-pronged fundraising strategy which includes doubling the fuel levy to Sh18 per litre and a proposed floating tax on fuel.

“The board is seeking additional funding through alternative sources such as vehicle inspection fees, insurance levy, infrastructure bonds and a review of the fuel levy to close this gap,” said Mr Ruwa.