Laikipia County credit profile upgraded ahead of infrastructure bond

Laikipia County has been given a stable outlook with improved ratings due to increased revenue collection and reduced pending bills.

GCR Ratings upgraded the county’s national scale long and short-term issuer ratings to BBB-(KE) and A3(KE) as the county moves closer to issuing the first-ever infrastructure bond by a devolved unit.

According to GCR, the improved credit profile by the county has been supported by an improvement in operating performance where its own source revenue rebounded to Kshs. 840 million last year from Kshs. 731 million in 2020 after COVID-19 disruptions. Locally collected revenues now account for 13.7% of total income.

On the other pending bills declined to Kshs. 412m at 31 December 2021.

As a percentage of income, pending bills improved from 21% in 2019 to 13.4% last year, and is likely to be less than 10% if the current level is maintained, GCR stated.

“The Stable Outlook reflects GCR’s expectation that Laikipia will continue to grow own source revenue and improve service delivery, which should support strong debt service metrics despite the proposed bond issuance,” said GCR Ratings.

The improvement in revenue collection was backed by the county’s efforts to expand the tax base by registering new businesses, introducing new fees and taxes and updating the property valuation.

“Laikipia is planning substantial new capital expenditure projects, which should lead to strong growth over the medium term, but its reliance on the National Government for the majority of income will remain. Constraining the operating performance assessment is the continued high expense base,” said GCR Ratings.

GCR says Laikipia has not made use of debt funding over the review period but has entered into operating lease agreements to help fund the purchase of construction machinery, motor vehicles and medical equipment, as part of its development expenditure.

“These lease obligations have been consistently serviced. It is also far advanced with plans to issue a Kshs. 1.2 billion infrastructure bond, the first by a County Government, to be used for capital projects.”

GCR added that it has factored in both the proposed bond and the value of leases which is expected to rise to around Kshs. 900m into debt calculations.

The improved credit profile is nonetheless undermined by delays in auditing the county’s books since the 2015/16 financial year though this is expected to decline with resolution of auditing challenges which could improve performance in the future.

Laikipia is the 15th largest county in Kenya by size, and was the 3rd fastest growing county between 2014 and 2017.

Laikipia Gross County Product was pegged at Kshs. 81.1 billion in 2017 accounting for 1.1 % of the National GDP.


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