Ms Flora Okoth (centre), the acting MD of Kenya Pipeline Company, CfC Stanbic boss Philip Odera (left), Co-operative Bank Corporate Banking Division Director Lydia Rono (right) among other representatives of financial institutions during the signing of a syndicated loan by a worth $350 million at KPC offices in Industrial Area, Nairobi. DIANA NGILA |  NATION MEDIA GROUP

Kenya is allowing key state-owned corporations to generate their own resources as the country struggles with funding requirements.

The National Treasury has allowed government-owned enterprises to borrow from commercial banks to fund mega infrastructure projects in a development widely expected to reinvigorate activities in the dormant syndicated loan market.

The move is expected to free additional resources for use by the Kenyan government, and bring the corporate governance and financial accountability of state-owned corporations into focus.

“State-owned corporations engaging in economic activities that are commercially viable can go for syndicated loans. We have no objection to that. That is why I increased the core capital for commercial banks so that we can have strong institutions with big balance sheets to finance mega infrastructure projects,” National Treasury Cabinet Secretary Henry Rotich told The EastAfrican.

Mr Rotich said key parastatals in the energy and transport sectors such as Kenya Pipeline Corporation (KPC), Kenya Electricity Generating Company, Kenya Power and Kenya Airports Authority qualify to take up syndicated loans.

“As long as the projects these firms are implementing are generating enough revenue to repay the loans, we have no objection to their proposals,” he said.

Kenya approved the first syndicated loan by a parastatal worth $350 million about two weeks ago.

The loan, in dollars, was acquired by KPC from a group of banks to finance part of the construction of the 450-km Line 1 multi-product fuel pipeline from Mombasa to Nairobi.

“Banks have realised that they need to offer long-term loans to be able to compete effectively with the bond market,” said Amish Gupta, director in-charge of investment banking at Standard Investment Bank.

KPC’s 10-year syndicated loan attracted interest at a rate of 5.38 per cent above the London Interbank Offered Rates — the benchmark rate which some of the world’s leading banks charge each other for short-term loans.

This compares favourably with the bond market where, for instance, Kenya is looking to raise up to Ksh15 billion ($144.33 million) through a five-year bond priced at 13.19 per cent.

“I think it is a step in the right direction. The government wants to remove itself from the management of these companies but what we want to see is a number of them being privatised,” said Daniel Kuyoh, a research analyst at Kingdom Securities.