China and Kenya have agreed to reschedule the terms of $3.5B in loans used to build the Mombasa-Naivasha railway. The deal extends the grace period and the maturity by five years.
The bigger shift is the currency. The loans were repayable in US dollars, and are now repayable in Chinese yuan. The interest rate has moved with it, from the US Federal Reserve’s Secured Overnight Financing Rate (SOFR) to China’s yuan-denominated Loan Prime Rate.
▪️A longer maturity and grace period eases near-term repayment pressure.
▪️Paying in yuan means Kenya’s debt now moves with the yuan, not just the dollar.
▪️Tying the rate to China’s benchmark cuts exposure to US interest rate swings, but adds exposure to Chinese ones.
The Chinese loan rescheduling for the Mombasa-Naivasha Railway project comes amidst accusations from the World Bank that Kenya may have overpaid for this project, upto an estimated KSh 117 million partly because of fraud in land compensation and an uncompetitive contract award.
The World Bank said that competitive tendering and clean land compensation deals would have lowered Kenya’s SGR costs.
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