Four counties rush to get infrastructure bond issue approval

Four counties are on course to get approval to raise funds through infrastructure bonds to bridge deficit in their development projects, the regulator has said.

The Capital Markets Authority (CMA) said it was in talks with the Treasury to facilitate counties, which meet the stringent borrowing conditions, to raise some of the Sh1.1 trillion project funding projected in the County Integrated Development Plan for 2018-23.

CMA director for regulatory policy and strategy Luke Ombara said Kisumu, Bungoma, Laikipia and Makueni have started the journey towards getting clearance to raise cash from investors for development projects.

“Before Laikipia (which plans to float Sh1.4 billion infrastructure bond), there was Makueni, Bungoma and Kisumu; all of which have been able to do a credit rating which is a step to show they are really progressing towards listing,” Mr Ombara said.

The Treasury set the stage for guaranteeing counties in raising cash through the Nairobi Securities Exchange and other international capital markets after publishing guidelines on borrowing by devolved units in early March.

However, they will only be given the green light to borrow upon meeting stringent conditions such as raising at least 15 per cent of project funds from own internally generated resources.

“There’s been a good level of interest for counties to raise capital or market-based finance, particularly based on their equitable transfer which is largely used in addressing recurrent expenditure,”Mr Ombara said.

“But they would also want to get into projects and you need long-term money to fund such long-term projects such as infrastructure, energy and building of resorts.”

Treasury CS Ukur Yatani said in the March circular that no county will be cleared to borrow unless the financial position of the specific County Government is deemed to be “satisfactory” over the medium-term.

“The CS shall not guarantee the loan unless the county government has the ability to repay the loan, pay any interest or other amount payable,” Mr Yatani wrote.

The Constitution allows counties to borrow from the capital markets and foreign sources with clearance from the National Treasury.

The Treasury has been reluctant to guarantee counties, which largely rely on the national government for funding, to raise funds from investors through the capital markets since 2013 when they started operations.