15 November 2018

Kenya: Laikipia Set to Float First Sh5 Billion County Bond

Laikipia County is on course to making history with the proposed sale of a Sh5 billion infrastructure bond to bridge a financing deficit.

If successful, the bond which is to be sold through the National Treasury, will make Laikipia the first devolved unit to raise money from the capital markets.

The plan comes at a time when the Controller of Budget's implementation report for the 2017-2018 financial year, indicates that counties raised Sh32.5 billion from local sources against a target of Sh49 billion, leaving a deficit of nearly Sh17 billion.

Ndiritu Muriithi, the Laikipia governor, Wednesday said the county was working with the National Treasury and the Central Bank of Kenya on the prospectus - the document that contains details of the bond including pricing, coupon and the tenor.

"Our borrowing will be sanctioned by Intergovernmental Budget and Economic Council and the National Treasury. This class of securities will ensure that the bond is attractive to investors," Mr Ndiritu said.

Laikipia is seeking funds to finance key infrastructure projects, including the roads network and building health facilities.

Infrastructure bonds are common with the national government, which On Monday issued a Sh50 billion instrument, the largest such offering since Kenya launched the first of such bonds in 2009.

Mr Ndiritu said his administration had managed to increase revenue collection from Sh463 million in the 2016-2017 fiscal year to Sh608 million the financial year ended June 2018.

His deputy, John Mwaniki, who was once the head of the Bond Market Association, said the county was waiting for a CBK advisory on the coupon rate and the minimum unit amount investors can buy.

Cheaper loan

Mr Mwaniki said the debt will be cheaper compared to getting a conventional loan from the bank.

"Infrastructure bonds are cheaper compared to bank loans. It has long-term benefits and does not pile pressure on county finances," he said.

The Capital Markets Authority (CMA) has established guidelines for county governments that seek to tap money from local markets to finance huge infrastructure projects.

Unlike other securities, infrastructure bonds are tax-free, making them more attractive to investors -- including foreign buyers.

Mr Ndiritu, who spoke during a briefing on the county's financial management and reporting, said Laikipia was first cleaning its books to prove that it is a transparent and accountable institution.

This year, the county is working for an unqualified report from the Auditor General after years of qualified opinion.

Mr Mwaniki further said Laikipia has embarked on the journey to improving its capacity to spend budget funds as well as manage pending bills that has left many counties loaded with debt.

The Constitution allows county governments to borrow, but on condition that they get approval from the county assembly and the backing of the National government, which also acts a guarantor of the debt.

More recently, counties have suffered a Sh9 billion budget cut after President Uhuru Kenyatta introduced austerity measures and signed the Finance Bill, 2018 into law spelling doom for programmes and projects earmarked for implementation in the current financial year.

Streamlined procurement

To build confidence, Mr Mwaniki said Laikipia has streamlined its procurement processes to ensure Local Purchase Orders and Invoices are generated online.

Besides, the county is promising to pay contractors and suppliers in a record 30 days as part of the effort to bring down pending bills and end frustration among businesspeople.

"We want to ensure all procurement is done on IFMIS so that contractors and suppliers are assured of pay after completing their work," he said.

Mr Ndiritu blamed his predecessor for the mountain of pending bills that were mainly the result of spending on projects and services that were not non-budgeted.

The governor said his administration is currently paying invoices within 42 days, dismissing claims that devolved units were not paying suppliers and contractors.

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