Kenyan pension funds are in talks to acquire a portion of the government’s overdue payments to some contractors and service providers, aiming to undo a decades-old logjam that has weighed on businesses and banks.
An industry group known as the Pack Hunters Club and other investors are setting up the nation’s first Special-Purpose Acquisition Company (SPAC) toward that end, according Hosea Kili, group chief executive officer at CPF Financial Services Ltd.
The first tranche will cover outstanding pension contributions and amounts owed to road contractors, Kili said in an interview. The SPAC will settle with creditors that agree to a negotiated haircut, and recoup the full amount from the state, enabling the Treasury to stagger payments over a longer period, he said.
The government owes pensions funds about Ksh.90 billion ($698 million) and the road construction industry another Ksh.166 billion.
In total it held Ksh.516.3 billion of such liabilities by end-June. The issue dates back decades and arrears have accumulated to the point where they pose structural and financial constraints for the economy, according to the National Treasury.
Many suppliers have gone out of business due to non-payment, and the resulting non-performing loans are hurting banks.
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“If you unlock this problem, the money will come back to the market and suddenly there will be a lot of rejuvenated economic activity happening again,” Kili said. “Right now, things are stuck.”
Pooled Investment
Pack Hunters Club, the pooled investment vehicle, plans to diversify the industry’s asset allocation into infrastructure projects, Kili said. Its first target is a planned $3.6 billion expressway linking the nation’s two largest cities.
The government’s capacity to drive development using taxes is limited and the private sector can take up some of that slack, he said.
“The only way you can do more investment is to bring in the private sector,” Kili said. “We believe that we are the ones at the front line of leading the new onslaught of either public-private partnership investments, or private sector-driven public good investments.”
Pension funds project industry assets will rise to at least Ksh.2 trillion by mid 2025. About 47% of the money of current funds is invested in government securities, 20% in guaranteed funds, 14% in immovable property and 8% in equities.
CPF, which manages Ksh.210 billion of public sector pensions, is structuring a sukuk bond to be issued in seven months. The security is capped at Ksh.1 billion and will be backed by regular cash flow from a local government real estate project.
