Kenya: State clears Sh42bn Railways debt to woo investors

[John Ashworth]

State clears Sh42bn Railways debt to woo investors

Sunday Nation
By NATION REPORTER
Posted Sunday, February 12 2012 at 19:04

The government has rescued the Kenya Railways Corporation from a Sh42 billion debt — giving the state agency a healthy balance sheet critical in attracting investors.

This follows a cabinet decision last week in which the government will repay the corporation’s debt in exchange of increasing its share-holding.

“The move will relieve Kenya Railways of its heavy burden and give the corporation a strong capital base,” said the statement from cabinet.

By June last year, the firm’s debt to a consortium of five international lenders had piled to Sh42 billion including a Sh4.8 billion loan borrowed in the late ‘90s.

In an interview with the Nation, the corporations’ managing director, Mr Nduva Muli, said the cabinet decision has given its ongoing restructuring a major boost even as he revealed that the firm is still light years from being fully profitable.

Modern rail network

“We wrote the proposal requesting the government to convert the outstanding loan to equity last year.

"This now makes the corporation financially attractive, and enhances its capacity to raise private industry finance for our strategic plan,” Mr Muli said.

The corporation plans to raise Sh16 billion ($200 million) this year from strategic investors and an undisclosed amount through bonds.

“This option also provides us a window to make profit by not incurring finance costs on servicing loans hence strengthening the shareholders’ equity position,” he said.

It has also lend its capital raising plan much needed push to fund a modern commuter rail transport network linking Mombasa and Kisumu to their surrounding counties.