Laikipia County's ratings up ahead of Sh12b bond issue

Laikipia County has received a stable outlook in new improved ratings owing to a rise in revenue collections and reduced pending bills. South African rating agency GCR Ratings upgraded the county’s national scale long and short-term issuer ratings to BBB-(KE) and A3(KE) ahead of a proposed Sh1.2 billion infrastructure bond issue, the first ever for counties.

“The stable outlook reflects GCR’s expectation that Laikipia will continue to grow OSR (own source revenue) and improve service delivery, which should support strong debt service metrics despite the proposed bond issuance,” it said in a statement.

GCR said Laikipia’s credit profile had been strengthened by an improved operating performance with own source revenue rebounding to Sh840 million in the 2021 financial year from Sh731 in 2020, which was 84 per cent of budget.

This was on account of efforts to expand the tax base by registering new businesses, introducing new fees and taxes and updating the property valuation role.

However, at 13.7 per cent OSR, GCR said this still remains a small portion of total income though it noted that 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.”

The ratings agency said that management and governance was a slight negative ratings factor, reflecting a lack of clean audits since 2015-16, but this had since changed.   A positive credit profile means that Laikipia, Kenya’s 15th largest county by size, was well placed to honour its debts should it float the Sh1.2 billion bond.

GCR also noted that 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.