China can’t seize Mombasa port over debt default
Kenyan authorities have allayed fears that China would seize the port of Mombasa if the country defaults on loans taken to finance the loss-making Standard Gauge Railway (SGR).
National Treasury Cabinet Secretary Ukur Yatani said Kenya had not offered the strategic national asset as collateral for the $ 3.2 billion loan from the Export Import Bank of China (Exim China) to finance the SGR project.
“The Port of Mombasa has no adverse exposure to any lender or class of lenders through existing loan agreements with the government,” Yatani said.
Although he maintains that the government is servicing SGR loans, concerns are growing that soaring public debt could see Kenya defaulting on its loan obligations, a risk that could expose the port to Chinese foreclosure. . In a report to parliament, the auditor general said that the assets of the Kenya Ports Authority (KPA) and the Kenya Railways Corporation (KRC) were used as collateral for the SGR loans.
“The Agreement provides that each of the Borrowers agrees that any proceedings against him or his assets (present or future) in connection with the Agreement, no immunity from such proceedings shall be invoked by him or the with regard to its assets and they irrevocably waive all proceedings. right to immunity, whether qualified as sovereign immunity or otherwise, ”says the report.
Trying to prove that the port of Mombasa is immune to claims from Chinese lenders, Yatani said that all external loans from bilateral lenders have pari passu provisions in the respective agreements requiring equal treatment in the service of all debts. Pari-passu is a finance agreement that gives multiple lenders equal rights to the assets used to secure a loan.
“For this reason, the Government of Kenya cannot and has not pledged public goods as collateral for a debt, as such action would not only violate the terms of its existing loan agreements with other bilateral creditors, but above all because Kenya treats all creditors the same. ,” he said.
Kenya’s cumulative public debt has soared to $ 65.3 billion and it is feeling the brunt of its financial obligations, especially the servicing of SGR loans. The country spends 40% of its tax revenues on servicing the public debt, with $ 315 million paid to the China Exim Bank for SGR loans in the current fiscal year.
The debt burden is increasing at a time when global rating agencies have downgraded Kenya’s credit status, a development that further increases the prospect of debt distress and default. “The government’s fiscal consolidation plan carries significant risks, while external debt will remain high. As a result, we are lowering our ratings on Kenya to ‘B’ from ‘B +’, ”S&P said in a statement earlier this month.
The Port of Mombasa is one of Kenya’s most strategic assets and generated $ 480 million in revenue and $ 125 million in profit in 2019.