Kenya eyes China bond to fund SGR

By Newsflash Reporter

Kenya has launched plans to issue its maiden Panda bond as part of efforts to secure financing for the delayed extension of the Standard Gauge Railway (SGR) from Naivasha to Malaba, near the Ugandan border.

The initiative reflects a broader strategy by the government to widen its external funding sources amid mounting pressure to complete the strategic regional infrastructure.

A Panda bond is a sovereign debt instrument issued in China’s domestic financial market, denominated in Yuan Renminbi (RMB), and primarily targeted at Chinese investors. Kenya is considering listing the bond on the Shanghai Stock Exchange. Treasury Cabinet Secretary John Mbadi, speaking after presenting the 2025/26 national budget to Parliament, confirmed the plan.

“We are in the process of actualising, raising more funds through Sukuk and even the Panda bond,” Mbadi said. “We are diversifying. We’re even going to the UAE for other bonds. We don’t want to tie ourselves to a few options, as market shocks can create major risks.”

Funding drive for key infrastructure

Although Mbadi did not specify the exact use of the bond proceeds, insider sources indicate the targeted Yuan-denominated bond is intended to raise about $1.5 billion to address the funding shortfall for the SGR extension. Prime Cabinet Secretary and Foreign Affairs Minister Musalia Mudavadi, who was in China this week, said Kenya was counting on Beijing’s support to issue the bond early in the new fiscal year.

“Panda bond discussions have started and Kenya looks forward to the support of China,” said Mudavadi following his meeting with Chinese Foreign Minister Wang Yi in Changsha, capital of Hunan province, where he attended a ministerial follow-up meeting on the Forum on China-Africa Cooperation.

China had scaled down lending to African countries, shifting from concessional loans to alternative financing models like grants, joint ventures, and sovereign bond access. The initial SGR phases—from Mombasa to Nairobi and Nairobi to Naivasha—were financed by China Exim Bank through loans and constructed by China Road and Bridge Corporation. The 729km stretch cost about $5 billion.

Under a previous agreement, Kenya and China were to each contribute 30 percent of the funds for the Naivasha-Malaba extension, with the remaining portion expected to come from private investors. However, Kenya has struggled to meet its share and has sought more assistance from China.

China re-engages on SGR

During President William Ruto’s April 2025 visit to Beijing, both governments signed an agreement to co-finance the 475-kilometre rail link from Naivasha to Malaba, where it will connect to Uganda’s SGR line to Kampala. Mudavadi confirmed this week that discussions on final financing terms are nearing conclusion, raising hope that work could soon begin.

“I expressed Kenya’s deep appreciation for China’s continued support, particularly in financial and trade cooperation. I also underscored the importance of concluding discussions on financial cooperation before the end of June 2025 as a critical step forward,” said Mudavadi after meeting Wang Yi on Tuesday.

Kenya’s lack of a railway connection to Uganda has meant that goods from the Mombasa port are primarily transported by road to landlocked neighbours like Rwanda, Burundi, South Sudan, and the DRC—raising transit costs and time. Longstanding funding challenges in both Kenya and Uganda have delayed the regional railway project, prompting both nations to explore alternative financing routes.

Although China was the main funder of the earlier SGR stages, it pulled out of the Malaba extension over concerns about debt sustainability and the project’s commercial viability. After prolonged efforts to source funds elsewhere, Kenya turned back to Beijing, which agreed to finance only 30 percent of the extension—a significant reduction from the 90 percent support provided previously.

The Panda bond is expected to help finance Kenya’s reduced share of the project. The government has also raised its railway transport budget by Ksh12.8 billion to Ksh38 billion ($293 million) in the 2025/26 budget, up from Ksh25.2 billion ($195 million) this year, indicating renewed focus on the rail sector.

If successful, Kenya would become only the second African country, after Egypt, to tap into the Chinese domestic bond market through a Panda bond. Additionally, Nairobi is exploring other avenues such as Sukuk (Shariah-compliant bonds) and Samurai bonds (issued in Japanese Yen) to diversify its funding sources. Since 2022, the government has leaned more on domestic borrowing, but weak economic growth has pushed it to seek new financing options.