Stanbic Bank in talks with State on servicing Kenya’s yuan-denominated SGR debt

Stanbic Bank Kenya is in discussions with the government on possible financing options to support the servicing of Kenya’s yuan-denominated debt following the conversion of part of the country’s Standard Gauge Railway (SGR) obligations into Chinese yuan.

Stanbic Bank Kenya Chief Financial Officer Dennis Musau said the lender is engaging the government on ways it could support the country as it adjusts to the new currency structure of its debt.

“Ongoing conversations. Those conversations are always ongoing,” Musau said when asked whether Stanbic had discussed options for servicing the yuan-denominated obligations with the government.

He added that the bank would explore opportunities to support the government as it seeks to manage its financing costs.

“When the government says we would like to re-index our cost of financing, we think that is a statement that is indirectly linked to where we should participate. So, we go and have conversations around how can we help,” Musau said.

The discussions follow Kenya’s decision to re-denominate about $6 billion of SGR-related debt into Chinese yuan, a move aimed at reducing pressure on the country’s dollar liquidity and limiting exposure to fluctuations in the US currency.

The conversion changes the currency in which part of Kenya’s railway-related obligations will be serviced, creating a greater need for access to Chinese yuan when debt payments fall due.

The move is particularly significant given Kenya’s trade relationship with China.

Kenya imports substantially more goods from China than it exports to the Asian country, resulting in a large trade deficit.

The imbalance means Kenya may not generate enough yuan naturally through export earnings to meet all its yuan-denominated obligations.

As a result, the government could rely on banks and other financial-market mechanisms to obtain the Chinese currency required for debt servicing.

The re-denomination of the SGR debt is part of broader efforts by the government to manage foreign currency risks and reduce pressure on Kenya’s dollar reserves.

The SGR, which connects the Port of Mombasa to Nairobi and the wider hinterland, was largely financed through loans from Chinese lenders.

The shift to yuan-denominated obligations could reduce the government’s exposure to movements in the dollar-yuan exchange rate, but it also introduces new considerations around the availability and cost of the Chinese currency.