China cannot seize Port of Mombasa if there is a debt default, says Kenya

Kenyan authorities have insisted that China will not be able to seize the Port of Mombasa if Kenya defaults on the money it borrowed from China to finance the loss-making Standard Gauge Railway (SGR).

Mombasa Port is an important Kenyan strategic assets, generating $480m in revenues and $125m in profits in 2019.

National Treasury cabinet secretary Ukur Yatani said that Kenya had not offered the Port, which he called a “strategic national asset” as collateral for a $3.2bn loan from the Export Import Bank of China (Exim China) to finance the SGR project.

This conflicts with a statement from the Kenyan Auditor General, who said in a report to parliament that the assets of Kenya Ports Authority (KPA) and Kenya Railways Corporation (KRC) were used as collateral for the SGR loans.

Yatani said that the Kenyan government was currently servicing the SGR loans, but concerns were growing that the country’s increasing levels of public debt could see Kenya default on its loan obligations.

Yatani’s line was that all external loans from bilateral lenders have pari passu provisions in the respective agreements requiring equal treatment in the servicing of all debts. “For this reason, the government of Kenya cannot and has not pledged public assets as security for a debt, because such an action would not only violate provisions in its existing loan agreements with other bilateral creditors, but more importantly because Kenya treats all creditors equally”.

Kenya’s cumulative public debt has reached $65.3bn and the country is spending 40% of tax revenues on servicing public debt. It has paid $315m to China Exim Bank for the SGR loans in the current fiscal year.