Inside Politics

SA rating agency affirms credit worthiness of three counties

Thursday, May 6th, 2021 00:00 |
Credit. Photo/File

MARKET:  Three counties have received a stable outlook rating from Johannesburg-based Global Credit Rating (GCR) agency, as they prepare to tap the debt market for development finance.

The counties include Makueni and Bungoma, both of whose long- term and short-term issuer rating class of BBB and A3 and Kisumu’s BB and B.

A long-term bond credit rating of BBB represents a degree of confidence that the business is operating in a trustworthy manner, and will make a good faith effort to resolve any customer concerns, while the A3 designates the seventh-highest rating a debt issuer can receive.

Churchilll Ogutu, a lead researcher at Genghis Capital said the updated credit ratings for the three counties will be up by the end of next month.

“Ideally these three counties are looking at meeting one of the three planks as a prerequisite for borrowing: credit worthiness.

The credit ratings are to put a figure on how credit worthy a county is,” he said.

Bungoma and Makueni have a slightly better credit rating than Kisumu, for both long term and short term debt, implying that the cost of borrowing for the two will be more or less similar, and lower than Kisumu’s, said Ogutu.

Early this year, Laikipia County Governor Ndiritu Muriithi said his government would be floating a Sh1.4 billion infrastructure bond later this year, which would be the first for a devolved unit seeking funds through the capital markets.

Recently, National Treasury issued guidelines on borrowing by County governments, to alleviate the budget deficits most facing.

Tax burden

The guidelines comes amid heavy criticism of increased and unsustainable borrowing by the national government, coupled by an increased tax burden on Kenyans.

Under the existing legislation, borrowings must be guaranteed by the national government, with funds channeled only to development expenditure.

In addition, I would have to demonstrate that the target project could not have been financed without such borrowing, that not less than 15 per cent of project funds will be contributed from county resources.

The guidelines also stipulate that no guarantee will be issued if the borrowing can lead to the national government exceeding the statutory public debt limits, or where the county government does not demonstrate that it has the ability to repay the loan, interest and any other amount in respect of the borrowing.   

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