The Cabinet meeting chaired by President Uhuru Kenyatta Thursday approved Laikipia County to float its Ksh.1.16 billion infrastructure bond.
This comes a month after GCR Ratings gave Laikipia County a stable outlook with improved ratings due to increased revenue collection and reduced pending bills.
GCR Ratings upgraded the county’s national scale long and short-term issuer ratings to BBB-(KE) and A3(KE).
“The Stable Outlook reflects GCR’s expectation that Laikipia will continue to grow own source revenue and improve service delivery, which should support strong debt service metrics despite the proposed bond issuance,” said GCR Ratings.
According to GCR, the improved credit profile by the county has been supported by an improvement in operating performance where its own source revenue rebounded to Ksh.840 million last year from Ksh.731 million in 2020 after COVID-19 disruptions.
Locally collected revenues now account for 13.7 percent of total income.
Its pending bills declined to Ksh.412 million as of December 31, 2021.
The Ksh.1.16 billion bond is expected to fund the grading of roads in urban areas, installing street lighting, constructing dams, and beautification of towns under the smart town initiative subject to requisite regulatory approval from the National Treasury, Commission on Revenue Allocation (CRA), and Capital Markets Authority (CMA).
It is a 7-year bond which will be priced at 12 percent.
“We expect it to be priced at the same level as a 7-year Treasury bond. The reason being it will enjoy Treasury guarantee,” said Laikipia Governor Ndiritu Muriithi.
The law requires Counties to be guaranteed by the Treasury to raise cash from investors upon meeting stringent conditions such as the ability to repay as reflected by revenue collection trends and viability of capital projects to be funded.
In September last year, Governor Muriithi presented the bond request to Treasury Cabinet Secretary Ukur Yatani.
Initial proposal to float the bod was in February 2021 and the Governor had expected the nod to come through by August the same year.
“It is a very innovative thing to do, nobody has done it before and we hope to open the door to other counties. We will be in the market just under Ksh.1.2 billion and the timeline we expect is July and are factoring this in our financial plan 2021/222,” said Governor Muriithi.
Laikipia County Assembly approved an infrastructure bond issue in August, making the County the first of its kind in the country to finance development through a bond issue.
The idea by Laikipia County to roll out an infrastructure bond was incepted when it received a first credit rating report in February 2021 which indicated a stable outlook for the County.
It joined the list of pioneer counties with a credit rating – Makueni, Kisumu and Bungoma counties a year later.
The three pioneer counties were rated under the World Bank-funded Kenya county creditworthiness initiative, which is a collaboration between the National Treasury, the CRA and CMA.
Laikipia is the 15th largest county in Kenya by size. Its Gross County Product (GCP) was pegged at Ksh. 81.1 billion accounting for 1.1 percent of the National Gross Domestic Product (GDP).
