Kenya Eyes KSh 390 Billion Bond for SGR Extension

Kenya, 8 November 2025 - Kenya is considering a KSh 390 billion (about US$2.6bn) financing option, likely a 15-year securitised bond backed by the railway development levy, to push the Standard Gauge Railway (SGR) from Naivasha to Malaba and eventually into the region.

The plan follows China’s scaled-back infrastructure lending and reflects Nairobi’s scramble to find new ways of funding one of its most ambitious and controversial projects.

Transport Cabinet Secretary Davis Chirchir and Railway Authority officials say the government is weighing a choice between a bond and a loan from development partners. The securitisation option would use the existing Railway Development Levy as a ring-fenced revenue stream for repayment, a structure similar to other recent infrastructure financings in Nairobi.

Why now?

The SGR, built in phases with more than US$5 billion in Chinese funding for the Mombasa–Nairobi–Naivasha legs, stalled before reaching the western border after Beijing reduced direct project lending.

That left Kenya with a partly completed line and large dollar-denominated obligations tied to the original loans. Nairobi’s appeal to the UAE and other partners has had limited traction, pushing the government to consider market-based fixes.

At the same time, Kenya’s public debt burden has climbed sharply: total public debt stood around KSh 11.5 trillion (May 2025) and the debt-to-GDP ratio was elevated, pushing policymakers to manage maturities and cost-of-debt risks more actively.

With pressure on fiscal space, securitisation and targeted bonds have become policy tools to mobilise large sums without fully expanding headline sovereign borrowings.

The SGR debt backstory, loans, re-profiling and currency shifts

Kenya borrowed heavily from China’s Exim Bank in 2014–2015, roughly US$5.08bn across several facilities to build phases of the SGR, loans that were dollar-denominated and carried high repayment obligations.

In 2025, the government moved to reprofile maturities and convert some dollar loans into yuan, a decision that officials say will lower interest costs and ease foreign-exchange pressures.

President Ruto’s team and advisers have publicly noted these steps as part of broader debt-management measures.

The IMF and other creditors have taken a keen interest in these moves.  reports show Nairobi has been negotiating with the IMF over how to treat securitised instruments in its debt calculations, a technical issue with big implications for Kenya’s ability to secure a new IMF-backed programme.

How securitised bonds are recorded (as sovereign debt or off-balance quasi-commercial liabilities) affects debt-to-GDP ratios and hence the country’s borrowing room.

The economics of a Sh390bn SGR bond

On paper, securitising the railway levy makes economic sense: the levy provides a predictable cashflow that investors can value, and a ring-fenced bond can attract buyers seeking revenue-backed assets.

A 15-year tenor spreads repayment and can lower near-term refinancing pressure. Yet, success depends on conservative stress testing, projecting lower fuel/rail usage scenarios, and strong legal frameworks that protect the revenue waterfall for bondholders.

Risks are clear. If rail traffic or the broader economy slows, levy receipts could underperform, leaving a gap that either the government must plug or bondholders will face payment shortfalls.

Furthermore, if securitised liabilities are later treated as part of sovereign debt by multilateral lenders or rating agencies, the perceived debt burden would rise, undermining the very objective of sidestepping headline debt increases.

What recent debt moves tell us about Kenya’s options

Kenya has been actively reshaping its debt profile: it partially bought back Eurobonds in early 2025 and has explored currency swaps and maturity extensions with bilateral creditors.

Moody’s and other analysts warn that high domestic borrowing and heavy interest costs mean debt servicing will remain a major fiscal drain for years.

These moves, including potential SGR securitisation, are tactical responses to a deeper structural issue: the need to match long-term infrastructure financing with sustainable revenues and cautious borrowing.

Analysts point out a trade-off: securitisation can accelerate development and stimulate short-term growth, but it narrows future fiscal flexibility.

The balance depends on whether the new infrastructure delivers enough economic returns, higher trade, lower transport costs and regional integration benefits, to offset the financing costs and revenue pledge.

Political economy and regional ambitions

The SGR extension is framed not just as domestic infrastructure but as a regional corridor linking Kenya to Uganda and beyond, a project with diplomatic and commercial weight. President Ruto has pushed for regional integration and has courted the UAE and China for funds.

But political appetite at home is mixed: critics question whether the large public investments yield commensurate social returns or mainly create debt obligations and maintenance costs.

What to watch next

1. Bond prospectus & legal structure: Will the levy be cleanly ring-fenced? How are trustee rights and enforcement designed? (These details determine investor appetite.)
2. IMF position: Whether the IMF counts the securitised bond as sovereign debt will be decisive for Kenya’s broader financing strategy and potential access to concessional funds.
3. Market pricing & demand: Initial yields and subscription levels will reveal how investors view Kenyan levy revenue risks versus sovereign backing.
4. Operational realism: Can the SGR scale freight and passenger volumes to justify the levy assumptions? If not, Kenya may face a fiscal funding gap.

Kenya’s Sh390bn bond idea is a realistic, market-savvy response to China’s retreat from easy project lending, but it comes with hard choices.

Properly structured, it could unlock the western SGR extension, boost regional trade, and generate jobs.

Poorly structured or misclassified, it could add hidden strain to public finances and complicate Kenya’s path back to safer debt metrics.

In a country that has already converted and reprofiled major railway loans, the SGR’s future will be as much a test of legal and financial engineering as of engineering the tracks themselves.