- Kenyan water firms are seeking about $7.1 billion from the capital markets for various projects.
- The initiative is a liaison between the Kenya Association of Stockbrokers & Investment Banks and the Eldoret Water and Sanitation Company.
- Traditionally, water service providers rely on tariffs, taxes, transfers, loans, bonds, and equity investments for funding.
Kenyan water firms have received the greenlight to secure fresh financing through the capital markets. Data shows that the utilities want to plug a funding shortfall of about $7.1 billion required for water projects.
The development comes following a collaboration between the Kenya Association of Stockbrokers and Investment Banks and the Eldoret Water and Sanitation Company.
KASIB and Eldoret Water and Sanitation Company partnership will establish alternative financing options through the bourse. The deal paves the way for water companies in Kenya to explore ways of raising capital through the stock market.
Water funding shortage in Kenya
Overall, firms in Kenya’s water sector are seeking $12.8 billion for Water Sanitation and Health (WASH) investments. However, the sector is grappling with an estimated $7.1 billion in funding deficit.
On his part, Nairobi Securities Exchange CEO Dr Geoffrey Odundo, emphasized that the memorandum of understanding between the organizations will reflect the shared belief in utilizing capital markets as allocators of medium to long-term capital, capable of attracting additional capital from impact investors.
How the financing will be done
The financing will be facilitated through the issuance of water and infrastructure bonds. These bonds are financial instruments that governments and water companies can issue to raise funds for water-related projects.
“The proceeds from these bonds can be utilized for the development and enhancement of water infrastructure, such as water treatment plants, sewer management systems, and distribution networks, among others,” said Dr Odundo.
Ugas Mohammed, the Chairman of the Capital Markets Authority, said the opportunity will enable water companies to execute their development projects on a larger scale. He added that the initiative will help reduce their reliance on government and development partners for funding.
Green finance and ESG
Mohammed added that President William Ruto’s government seeking opportunities to raise funds from the capital markets. Initiatives like this, along with the issuance of green finance and Environmental, Social and Governance frameworks, represent the future of the capital markets, he noted.
The collaboration between KASIB and Eldoret Water and Sanitation Company will explore and leverage various bourse-based funding opportunities.
Typically, water service providers rely on funding from tariffs, taxes, transfers, loans, bonds, and equity investments. This partnership marks the initial step towards securing funding for water infrastructure development through the capital markets.
Donald Wangunyu, Chairman of KASIB said Eldoret Water and Sanitation Company is engaging with the Water Services Providers Association to bridge the funding gap.
With projects awaiting funding of $14.14 million (KSh2 billion), water utilities are turning to the capital markets for capital. “The MoU between the capital markets and the government is a significant step that will open new avenues for Kenyan water companies to raise funds,” said Wangunyu.
This initiative represents the government’s second attempt to raise funds in the financial markets for water and sanitation programs.
Previously, the government sought private contributions through the Kenya Pooled Water Fund, which was under the Ministry of Water’s 2018-2022 strategic plan.
Although the program did not achieve its target of issuing a bond for the development of local water and sanitation infrastructure, it demonstrated that capital market investors are willing and capable of investing in well-structured water sector projects.