Kenya banks on Panda bond to fund SGR to Malaba
A Panda bond is a sovereign facility issued in the Chinese domestic market and denominated in Yuan Renminbi (RMB), targeting Chinese investors and institutions.
Kenya mulls issuing it on the Shanghai Stock Exchange, seeing it as a useful path to fetch new monies for big-ticket projects. National Treasury and Economic Planning Cabinet Secretary John Mbadi says the plan is to diversify Kenya's external financing sources.'We are in the process of actualising, raising more funds through Sukuk and even the Panda bond,' Mr Mbadi told journalists after presenting the 2025/26 budget statement to Parliament on Thursday, referring to sovereign bonds issued in Arab and Chinese markets respectively.'We're diversifying. We're even going to the UAE for other bonds. We don't want to confine ourselves to specific bonds like it has been previously, because there would be serious risk in the event of certain turbulence in those particular markets.'While Mr Mbadi did not disclose the exact purpose of the Panda bond proceeds, sources familiar with the matter say the Yuan-denominated facility is specifically aimed at bridging the funding shortfall for the SGR extension project, seeking to raise at least $1.5 billion.
This week, Musalia Mudavadi, Prime Cabinet Secretary and Foreign and Diaspora Affairs Cabinet Secretary, said Kenya was banking on Chinese support to ensure the bond is floated at the start of the next fiscal year.'Panda bond discussions have started and Kenya looks forward to the support of China,' he said after meeting with Chinese counterpart Wang Yi in Changsha, the capital of Hunan province in southern china.
China has long stopped issuing concessional loans to African countries but hasbeen gradually opening up to public-private partnerships, grants and permitting foreign governments to fetch funds via sovereign bonds.
Kenya had initially agreed with China to co-finance the project, each contributing 30 percent of the required funds, with a consortium of private investors expected to cover the rest. But Nairobi has since expressed difficulty in raising its share and requested additional Chinese support.
During President William Ruto's state visit to Beijing in April, the two countries signed a deal to jointly finance the 475-kilometre rail from Naivasha to Malaba, where it is expected to link with Uganda's own SGR extending to Kampala.
I also underscored the importance of concluding discussions on financial cooperation before the end of June 2025 as a critical step forward,' Mr Mudavadi said in a dispatch after a meeting with Wang Yi on Tuesday.
Lack of a rail link between Kenya and Uganda has meant that most cargo from the Mombasa port is transported by road to Uganda, Rwanda, Burundi, South Sudan and the Democratic Republic of Congo. This overreliance on road transport increases both time and cost.
But financing constraints in both Kenya and Uganda have long delayed efforts to complete the Naivasha–Kampala railway connection, pushing both governments to court new financiers for their respective sections.
China was the key financier of the first two SGR phases—from Mombasa to Nairobi, and then from Nairobi to the Naivasha dry port—through loans from the China Export-Import (Exim) Bank. The 729-kilometre stretch was built by the China Road and Bridge Corporation, a state-owned firm, at a total cost of about $5 billion.
China pulled out of the Malaba extension after Naivasha, citing concerns over its commercial viability and Kenya's rising debt, which raised the risk of loan default — including on Chinese credit.
After years of seeking alternative financing, Kenya returned to Beijing, leading to the April agreement in which China will finance only up to 30 percent of the costs, a sharp drop from the 90 percent it had provided for the earlier phases.
The Panda bond is expected to cover part of Kenya's reduced contribution.
The Treasury has also increased the railway transport budget by Ksh12.8 billion ($99 million) to Ksh38 billion ($293 million) in the 2025/26 fiscal year, up from Ksh25.2 billion ($195 million) in the current year, signalling renewed investment in the sector.
If successful, Kenya would become only the second African country after Egypt to access the Chinese capital market through a Panda bond.
Cairo raised $480 million via such a bond in October 2023.
With concessional funding drying up — following the expiry of an International Monetary Fund (IMF) programme in March — bonds issued in China, Japan, or the UAE appear more attractive, especially as Eurobond yields remain high.
As of March, Kenya's total public debt stood at $87.8 billion about 71 percent of GDP, placing the country at high risk of debt distress.
International lenders have urged Nairobi to slow down on borrowing, especially for large infrastructure projects.
© Copyright 2022 Nation Media Group. All Rights Reserved. Provided by SyndiGate Media Inc. (Syndigate.info).
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Zawya
an hour ago
- Zawya
Kenya to pay highest contribution to EAC budget in proposed new model
Kenya will contribute more to the East African Community budget in a proposed new financial model that is meant to cure perennial defaults by member states, which has left the bloc financially crippled. Kenya's Prime Cabinet Secretary and Cabinet Secretary for Foreign and Diaspora Affairs Musalia Mudavadi announced the proposed model to the Kenyan parliament on Thursday based on each partner state's average nominal GDP per capita for the past five years as assessed by the World Bank. In this plan, East Africa's largest economy will contribute $12.1 million annually, (23.7 percent) to the EAC, based on an equal contribution of $8.5 million by each country. Tanzania will contribute $9 million, Uganda $8.5 million, Rwanda $8.3 million, South Sudan $6.6 million and Burundi $6.4 million. The EAC is assessing the latest entrants, Democratic Republic of Congo and Somalia. Currently, partner states contribute equally to the budget of the Community – $7,007,747. The heads of state, at their 23rd Ordinary summit that met on November 24, 2023, agreed on a financing formula of 65 percent equal contribution by partner states and 35 percent assessed contribution.'On the basis of the proposed model, our computation shows that Kenya would make an additional contribution of $3.6 million, thus bringing her annual total contribution to $12.1 million, which accounts for 23.8 percent of the total annual budget for the Community,' Mr Mudavadi told MPs, when he appeared before the National Assembly Committee on Regional Integration. The model is meant to address economic disparities among partner states while ensuring sustainable financing for EAC operations and programmes.'Certainly, the 65 percent equal and 35 percent assessed rule benefits smaller economies like Burundi, Somalia and South Sudan, which have struggled to meet traditional contribution requirements due to limited fiscal capacity and competing domestic priorities,' the minister said. The framework aims to provide sustainable financing while ensuring that all partner states maintain ownership and responsibility for EAC operations and programmes. The formula is expected to cure the budget deficit problem occasioned by poor remittances, with only $32 million having so far been paid out from a $56 million contribution target for the 2024/25 financial year.'In the last two decades, Kenya has contributed a total of $186 million to the EAC. These contributions are anchored on Article 132 (4) of the EAC Treaty,' Mr Mudavadi said. The new proposal came after a study on the required reforms to align the EAC structure, programmes and activities with the financial resources available in partner states. This was to ensure sustainability of the Community while addressing the dependency syndrome. The study identified key priority projects, programmes and activities that could be implemented with available resources now and in the future without slowing the integration momentum and constraints with the existing funding structure by partner states and development partners that causes delays and non-compliance. The proposed hybrid model will be reviewed after three years of its implementation. Mudavadi admitted that the EAC is facing a financial crisis, with the July 2025 staff salaries not paid.'Although the East African Legislative Assembly has passed a rationalised budget for the 2025/26 financial year, which is a total reduction of $20,000, translating into a reduced contribution per partner state to the Community of $2,500, the Community continues to struggle in its operations and the July salaries and other statutory obligations lay in abeyance,' the minister said. 'The Secretariat continues to struggle in its operations due to funding challenges as it has been borrowing from the confederation kitty, which is now exhausted.'The Chairperson of the EAC Council of Ministers, Beatrice Askul Moe, tabled before the Eala the budget estimates for the 2025/2026 Financial Year totalling $109.3 million. So far, Kenya, Uganda, Tanzania, and Rwanda, have paid the full amount for the financial year 2024/25. South Sudan had paid $300,000 as at July 15, 2025, DRC owed $20.7 million and Burundi $15.7 million for FY2024/25. The EAC Secretary-General Veronica Nduva has dispatched debit notes to partner states with arrears. © Copyright 2022 Nation Media Group. All Rights Reserved. Provided by SyndiGate Media Inc. (
Zawya
2 hours ago
- Zawya
Kenya revives FTA negotiations with US as clock ticks towards Agoa expiry
Kenya has announced plans to kickstart negotiations with the United States on a bilateral Free Trade Agreement (FTA) that President Donald Trump initiated during his first administration. Trade Cabinet Secretary Lee Kinyanjui is expected to lead a Kenyan delegation to Washington DC in the next week to meet with the US Representative of Trade and other top trade officials over possible revival of the FTA. The revelation came as Nairobi started a public relations campaign to reassure the country that all was well after the US seemed ready to sanction it over its dalliance with China. Earlier in the week, the US announced it had drafted a bill that would pave the way for Washington to review its trade and defence relations with Kenya. Republican Senator for Idaho James Risch has introduced an amendment to the National Defence Authorisation Act for the Fiscal Year 2026 seeking a 90-day reassessment of Kenya's Nato status over it ties with Beijing. If adopted, the amendment would mandate US Secretary of State Marco Rubio to submit a report on Kenya's foreign policy alignments, defence partnerships, and human rights record within 180 days, reassess Kenya's Major Non-Nato Ally status. But President William Ruto fought off the push for a probe into Kenya's ties with rivals of the US, links to armed groups and human rights violations, including abductions, citing trade benefits to justify Nairobi's bond to China. 'Some of our friends are complaining that we are doing too much trade with China… but it is what I must do for Kenya. It's in the best interest of Kenya that we get into this (China) market,' President Ruto told a private sector meeting in Nairobi on Wednesday.'We have concluded the high-level conversation with China. They have agreed to a reciprocal arrangement. They have agreed to remove all the tariffs on our tea, on our coffee, on our avocado, and all other agricultural exports. That, I think, is a major breakthrough for us,' President Ruto said. As the US returns to a more protectionist trade agenda under Trump, Kenya, like many other African states, faces a renewed wave of uncertainty. In response to US disengagement, many African countries have accelerated economic diplomacy with China, the European Union, and the Gulf states. The EU's Global Gateway and China's Belt and Road projects have provided infrastructure and market alternatives. The African Continental Free Trade Area (AfCFTA) is also gaining traction, helping countries diversify away from dependence on Western trade preferences. The Trump administration has shown a preference for bilateral deals in place of blanket ones such as the African Growth and Opportunity Act (Agoa), which is set to expire on September 30. With Agoa gone, the 10 percent tariff would affect Kenya's total trade with the US. Nairobi exported goods worth $737.3 million to the US in 2024, according to the US Trade Representative's Office.'We want to have a better trading platform with the US, and we have a huge plan around it. Both the US and Kenya are on the same page,' Kinyanjui told The East African. He said that the Trump administration is likely to revive the FTA. Yet, there was a US-Kenya Strategic Trade and Investment Partnership (Stip) in the works with the Joe Biden administration.'Trump started the FTA, that was his dream,' Mr Kinyanjui said. 'But after he left office, the thinking of the people who he left changed. Now that he has come back, there have been such huge changes that there is no time now to sit back and agree on some of the things.'The US and Kenya began a free trade agreement negotiations in 2020, under Trump and Uhuru Kenyatta. The Stip emphasises strategic trade and investment rather than a full-fledged FTA.'The trade conversation started between the US and Kenya was only shelved, not cancelled,' Mr Kinyanjui said this week. The reasoning behind the Stip was reducing non-tariff barriers, lowering costs for US businesses and helping US firms maintain their competitiveness in the Kenyan market, especially given Kenya's new trade agreements with the United Kingdom and the European Union ratified by both parties as of April 2024, both of which lower tariffs. But an FTA is considered superior to a Stip by both the Kenya-US stakeholders. The Stip was not a comprehensive free trade agreement in the traditional sense: It would not address tariff barriers, as would a comprehensive FTA. According to a US Congress document, the FTA was more popular than the Stip. For instance, while the Stip is not slated to address tariff barriers, some businesses support the inclusion of tariffs. For example, the US agriculture industry asserts that Kenyan tariffs on agricultural products will continue to hinder US market access even if NTB concerns are addressed. The US provided unilateral duty-free treatment to most Kenyan exports through the Generalised System of Preferences (GSP), which lapsed in 2020, and Agoa which expires next month. Both Agoa and GSP require congressional reauthorisation every few years, and so Kenyan exporters have expressed interest in gaining permanent market access to the US under a comprehensive FTA, rather than preferential benefits provided under Agoa and GSP. "Kenya is looking for a comparative and comprehensive advantage against other exporters of textiles and apparel to the US, such as Bangladesh and Vietnam,' said Jas Bedi, chairman of the Kenya Private Sector Alliance.'We are undergoing a transformation under a new world trade order. There is now more protectionism and bilateralism, as opposed to multilateralism and rule-based trading agreements.'Kenya qualifies for Agoa's third-country fabric rule, which allows it the flexibility to export apparel made with imported fabrics to the US duty-free. In 2023, nearly all US apparel imports from Kenya under Agoa were assembled from third-country fabrics. By contrast, US FTAs typically require local or US sourcing of yarn and fabrics to qualify for duty-free treatment, which would now favour Kenya. 'The issue of Kenya remaining a leading manufacturer and exporter of textile and apparel is going to be the case for a long time to come,' said CS Kinyanjui.'Even if Agoa ends, the US market still needs clothes and they are not producing them there. Kenya, with other African countries, has written petitions to the US to allow stability and certainty to avoid a slowdown, which is not easy once Agoa expires.'Apparel exported to the US market under the Agoa earned Kenya $470 million last year, a 19.2 percent jump from $392 million in 2023, according to the Kenya National Bureau of Statistics Economic Survey 2025. The survey indicates that Kenya's volume of apparel exported to the US market under the duty-free programme increased from 97.3 million pieces in 2023 to 116.0 million pieces in 2024. He said that Trump's 10 percent tariff would hurt US citizens most as they would have to bear the extra cost.'Normally, you impose a tax on a product that you are producing to discourage importation. So, textiles and cotton are not what they want to bring to their country -- they want to import. With increased tariffs, they are making the cost of living higher,' Mr Kinyanjui said. Meanwhile, Agoa is a US trade programme that provides eligible sub-Saharan Af-rican countries with duty-free access to the US market, covering over 1,800 prod-ucts. Among others, Agoa, which was enacted in 2000, US economic relations with the region. Agoa has been considered a cornerstone of US-Africa trade relations over the years. © Copyright 2022 Nation Media Group. All Rights Reserved. Provided by SyndiGate Media Inc. (
Zawya
3 hours ago
- Zawya
African Development Bank to finance $500mln of Ethiopia's new airport
ADDIS ABABA: The African Development Bank will contribute $500 million towards the financing of a new airport in Ethiopia - which is expected to be Africa's largest when completed in 2029 - it said on Monday. State-owned Ethiopian Airlines has signed an agreement for the design of the four-runway airport near the town of Bishoftu, around 45 km (28 miles) southeast of the capital Addis Ababa. The airline has said it will provide 20% of the funding for the $10 billion project and the rest will come from creditors. "The bank has itself earmarked up to $500 million, subject to board approval, to anchor the funding of this transformational regional integration project," the development bank said in a statement. Last week, it said it was leading efforts to raise $7.8 billion for the project, which will have the capacity to handle 100 million passengers per year. (Reporting by Dawit Endeshaw; Writing by Hereward Holland; editing by Barbara Lewis)
