China’s CRBC, Shandong and Kenya’s NSSF to expand highwayChina changes model of developing Africa infrastructureKenya highway project financing split into debt, equity<\/p>\n
GILGIL, Kenya, Nov 28 (Reuters) – Kenya and two Chinese state firms launched construction of a $1.5 billion highway expansion on Friday, marking Beijing’s return to major infrastructure development in the East African economy after a years-long hiatus.<\/p>\n
The project, split into two phases, will be financed by the partners through a mix of debt and equity using a model that is gaining traction after China’s traditional lending model raised concerns over borrowers’ debt burdens.<\/p>\n
Sign up here.<\/a><\/p>\n Kenya chose the public-private partnership model to fund the highway construction because securing normal budgetary allocations would have taken a “lifetime”, President William Ruto said.<\/p>\n “The next option was borrowing but that too was untenable given our debt burden and limited fiscal room,” he told a cheering crowd at a launch site, before flagging off graders, excavators and tipper trucks to be used in the construction.<\/p>\n The project will improve a key transport corridor that links Kenya’s port of Mombasa with its western region and neighbouring landlocked states like Uganda, via Nairobi.<\/p>\n AS CHINA REPOSITIONS IN AFRICA, KENYA STRIKES A DEAL<\/p>\n After pumping billions of dollars into infrastructure projects, China cut its lending in Africa around 2019 as worries grew over debt sustainability in countries like Kenya.<\/p>\n Beijing pledged $50 billion in credit and investments over three years, however, at a summit with African leaders<\/a> last year as it moves to reposition itself on the continent.Kenya terminated a deal with a consortium led by France’s Vinci SA (SGEF.PA), opens new tab<\/a> for the highway expansion project earlier this year. The new agreement<\/a> was announced during a state visit by Ruto to Beijing in April.Kenya is among Washington’s closest African allies. And the rapprochement between Nairobi and Beijing angered U.S. President Donald Trump<\/a>, prompting Ruto to issue a public defence of the strategy, saying Kenya needed to boost exports into markets like China.DEBT, EQUITY MIX AND A 28-YEAR TOLL CONCESSION<\/p>\n One phase of the highway project will cost $863 million and see China Road and Bridge Corporation partner with Kenya’s state pension fund NSSF to expand two existing stretches of a single-lane, 139-kilometre (86-mile) highway into four- and six-lane dual-carriage roads, the Kenya National Highways Authority said.<\/p>\n In the second phase, Shandong Hi-Speed Road and Bridge International, a subsidiary of China’s Shandong Hi-Speed Group, will develop an existing single-lane, 94-kilometre stretch of highway into a six-lane carriageway at a cost of $678.56 million.<\/p>\n Both total cost estimates include financing costs, KENHA said.<\/p>\n Deals for the two portions of the project will be split into 75% debt and 25% equity. NSSF will contribute 45% of the equity funding in the phase it is involved in.<\/p>\n The borrowing could come from Chinese commercial lenders and state entities like Export-Import Bank of China, said Kefa Seda, a senior official at the finance ministry.<\/p>\n The firms have until the end of 2027 to complete construction followed by a 28-year concession to collect tolls to recoup their investment and make a return.<\/p>\n Reporting by Duncan Miriri; Editing by Karin Strohecker and Joe Bavier<\/p>\n Our Standards: The Thomson Reuters Trust Principles., opens new tab<\/a><\/p>\n