Kenya banks on Panda bond to fund SGR to Malaba

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Kenya has kicked off the process of issuing its first Panda bond as it seeks to plug financing gaps ahead of extending its standard gauge railway (SGR) from Naivasha to Malaba at the border with Uganda – a project heavily reliant on Chinese support.

A Panda bond is a sovereign facility issued in the Chinese domestic market and denominated in Yuan Renminbi (RMB), targeting Chinese investors and institutions.

Kenya mulls issuing it on the Shanghai Stock Exchange, seeing it as a useful path to fetch new monies for big-ticket projects. National Treasury and Economic Planning Cabinet Secretary John Mbadi says the plan is to diversify Kenya’s external financing sources.“We are in the process of actualising, raising more funds through Sukuk and even the Panda bond,” Mr Mbadi told journalists after presenting the 2025/26 budget statement to Parliament on Thursday, referring to sovereign bonds issued in Arab and Chinese markets respectively.“We’re diversifying. We’re even going to the UAE for other bonds. We don’t want to confine ourselves to specific bonds like it has been previously, because there would be serious risk in the event of certain turbulence in those particular markets.”While Mr Mbadi did not disclose the exact purpose of the Panda bond proceeds, sources familiar with the matter say the Yuan-denominated facility is specifically aimed at bridging the funding shortfall for the SGR extension project, seeking to raise at least $1.5 billion.

This week, Musalia Mudavadi, Prime Cabinet Secretary and Foreign and Diaspora Affairs Cabinet Secretary, said Kenya was banking on Chinese support to ensure the bond is floated at the start of the next fiscal year.“Panda bond discussions have started and Kenya looks forward to the support of China,” he said after meeting with Chinese counterpart Wang Yi in Changsha, the capital of Hunan province in southern china.

China has long stopped issuing concessional loans to African countries but hasbeen gradually opening up to public-private partnerships, grants and permitting foreign governments to fetch funds via sovereign bonds.

Kenya had initially agreed with China to co-finance the project, each contributing 30 percent of the required funds, with a consortium of private investors expected to cover the rest. But Nairobi has since expressed difficulty in raising its share and requested additional Chinese support.

During President William Ruto’s state visit to Beijing in April, the two countries signed a deal to jointly finance the 475-kilometre rail from Naivasha to Malaba, where it is expected to link with Uganda’s own SGR extending to Kampala.

I also underscored the importance of concluding discussions on financial cooperation before the end of June 2025 as a critical step forward,” Mr Mudavadi said in a dispatch after a meeting with Wang Yi on Tuesday.

Lack of a rail link between Kenya and Uganda has meant that most cargo from the Mombasa port is transported by road to Uganda, Rwanda, Burundi, South Sudan and the Democratic Republic of Congo. This overreliance on road transport increases both time and cost.

But financing constraints in both Kenya and Uganda have long delayed efforts to complete the Naivasha–Kampala railway connection, pushing both governments to court new financiers for their respective sections.

China was the key financier of the first two SGR phases—from Mombasa to Nairobi, and then from Nairobi to the Naivasha dry port—through loans from the China Export-Import (Exim) Bank. The 729-kilometre stretch was built by the China Road and Bridge Corporation, a state-owned firm, at a total cost of about $5 billion.

China pulled out of the Malaba extension after Naivasha, citing concerns over its commercial viability and Kenya’s rising debt, which raised the risk of loan default — including on Chinese credit.

After years of seeking alternative financing, Kenya returned to Beijing, leading to the April agreement in which China will finance only up to 30 percent of the costs, a sharp drop from the 90 percent it had provided for the earlier phases.

The Panda bond is expected to cover part of Kenya’s reduced contribution.

The Treasury has also increased the railway transport budget by Ksh12.8 billion ($99 million) to Ksh38 billion ($293 million) in the 2025/26 fiscal year, up from Ksh25.2 billion ($195 million) in the current year, signalling renewed investment in the sector.

If successful, Kenya would become only the second African country after Egypt to access the Chinese capital market through a Panda bond.

Cairo raised $480 million via such a bond in October 2023.

With concessional funding drying up — following the expiry of an International Monetary Fund (IMF) programme in March — bonds issued in China, Japan, or the UAE appear more attractive, especially as Eurobond yields remain high.

As of March, Kenya’s total public debt stood at $87.8 billion about 71 percent of GDP, placing the country at high risk of debt distress.

International lenders have urged Nairobi to slow down on borrowing, especially for large infrastructure projects.