Kenya Court Declines to Halt Payments Seen Delaying Eurobond

Kenya’s High Court declined to stop the government from making two payments awarded by courts in the U.K. and Switzerland that the Treasury has said will enable it to proceed with a planned Eurobond offering.

The Law Society of Kenya had requested the court temporarily suspend the payments, which are currently being considered for approval by Kenyan lawmakers, until a further hearing on May 26. On that date, Justice David Majanja will rule on the law body’s petition for the payments to be permanently halted.

Issuing an order to temporarily suspend the payments would “infringe on the ability of the legislature to exercise its constitutional mandate of oversight on matters of revenue and expenditure,” Majanja said in a ruling today in the capital, Nairobi.

The Law Society served a petition on Treasury Secretary Henry Rotich and Attorney-General Githu Muigai on May 5 seeking to stop the 1.4 billion-shilling ($16 million) payments ordered by courts in Geneva and London, James Mwamu, a spokesman for the society, said in Nairobi. Rotich said April 29 the government is unable to sell as much as $2 billion of Eurobonds until the payments are made.

The court awards, made in Geneva in 2012 and London in 2013, are linked to contracts that the Kenyan government awarded to companies to supply communication equipment between 1997 and 2004.

‘Fake Company’

The agreements relate to a corruption scandal, known as Anglo-Leasing, in which contracts were secured by the Kenyan government through a “fake company,” Mwamu said, citing an investigation by the government’s anti-graft agency. The investigation then found that the companies had no directors or offices, he said.

Transparency International, the Berlin-based anti-graft watchdog, said April 30 that parliament approving the awards to “faceless entities” would be rewarding corruption. Procurement processes weren’t followed in signing the contracts with companies, and transactions were concluded outside the budget process, Transparency said.

Kenya is selling Eurobonds to help fund infrastructure projects aimed at helping the economy become a middle-income economy by 2030 and to help repay a $600 million syndicated loan due this month. The Treasury said in February it was considering talks with lenders to extend repayment of the facility for three years, the Nairobi-based Business Daily newspaper reported in February.

International Reputation

The sale of Eurobonds “cannot take place unless all obligations related to the court awards are paid,” Rotich said in a statement on April 29. Payment will “protect Kenya’s hard-won international reputation as a country which meets its lawful obligations.”

Kenya’s government wants to make the payment to avoid a default situation that may reduce its credit ratings, Robert Bunyi, managing director of Nairobi-based Mavuno Capital said by phone. Kenya’s long-term, foreign currency debt has been assigned a B+ rating by Standard & Poor’s and Fitch Ratings, four levels below investment grade and on par with Mongolia. It has the equivalent B1 rating from Moody’s Investors Service.

“They may be fictitious contracts, but they exist and can’t be wished away,” Bunyi said. “They have a bearing on the country’s credit assessment.”

Parliamentary budget committee Chairman Mutava Musyimi April 30 withdrew a motion he tabled in the house to approve the payments, citing the need for further consultation on the issue.

The Treasury is seeking parliamentary approval to make the payments after the attorney general advised the awards be paid. There is no room to further appeal the Swiss and London court rulings, and the awards are accruing penalty interest of 96.6 million shillings per year, according to Rotich’s statement.

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