Kenya, says the World Bank, is East Africa’s largest and most diversified economy, with an ambitious vision of becoming a middle-income country and lifting millions out of poverty in the next decade. As a major communications and logistics hub, with a significant Indian Ocean port and strategic country borders with surrounding Ethiopia, South Sudan, Tanzania and Somalia, it has been one of the fastest-growing economies in Sub-Saharan Africa (with GDP growth of 5.8% in 2016). However, lack of water supply infrastructure was noted by the World Bank as one of a number of on-going growth inhibitors.

In 2012, the Athi Water Services Board (AWSB) launched Kenya’s National Water Programme, set up by the Kenyan Ministry of the Environment, Water and Natural Resources as a “blueprint” for Nairobi and satellite towns, to be implemented in five phases from 2012 to 2030. One element of this plan is the Ruiru II project, involving the construction of a 55-metre-high dam, the transfer of untreated water and a purification plan to supply drinking water to more than 300,000 people.

In 2012, the AWSB and the Government of the Republic of Kenya moved water projects to the top of the priority list and various memoranda of undertakings were signed between 2012 and 2015. One of them was for the design and build of the Ruiru II Dam project, for which a consortium was formed between French construction exporters Sogea Satom, Vinci Construction Grands Projets and Egis Eau. It was at this point that Deutsche Bank became involved in financing discussions at the invitation of Vinci – the contract with the AWSB could not be signed until all the financing was in place.

The four main stages of the project are:

• Site investigation;
• Dam construction (preliminaries and general, embankment, spillway, intake, grouting);
• Pipelines construction; and
• Water treatment plant construction.

The work involves “construction of an earth fill dam located downstream of the confluence of the Bathi and Ruiru rivers”, which allows 40,000m³/day of water to be conveyed to the treatment plant. It also involves “the construction of raw water gravity transmission mains, construction of a water treatment plant at Ndumberi Township, and construction of clear water mains and terminal tanks to supply water to Kiambu and Karuri Towns”.

In June 2017, Deutsche Bank arranged a €180m financing for the Kenyan government, acting through its National Treasury for the financing of the engineering, procurement and construction contract signed between the AWSB and the consortium. Deutsche Bank acted as structuring bank, mandated lead arranger (MLA), agent and original lender, with Societe Generale invited to act as co-MLA and co-lender.

Vincent Gabrie, Head of Structured Trade and Export Finance, Paris, at Deutsche Bank, explains that the financing had to “match the terms of the commercial contract” and that “Deutsche Bank keeps a very tight control of the flow of the funds under the contract and receives detailed reporting on what it is being used for”.

Among the positive impacts and outcomes of the deal were:

• Provision of good quality surface water to residents who currently depend on unreliable ground water;
• Distance and time spent in search of water reduced for beneficiaries (especially women and children); and
• Improvements to the standards of living in the region, in particular, in respect of health and hygiene, putting the economy in a better position to increase income and productivity.

This was a complex deal, not least because, while there is on-going good cooperation between France and Kenya, there was only a limited amount of French content, and that determines the size of loan covered by the French export credit agency, BPI France. With a considerable element of local sourcing to clean the site, level the fields and create the dam by moving earth, a substantial commercial loan tranche was needed for €105m (see Figure 2). “Each element of the deal depended on the other – Deutsche Bank and Societe Generale could not sign the deal until the French Government had confirmed the extent of their direct lending to the National Treasury of Kenya,” says Gabrie.

With a large infrastructure project of this kind, says Alarik d’Ornhjelm, Head of Structured Trade and Export Finance, Middle East and Africa, at Deutsche Bank, “we had to extend the maturity of the loans as much as possible – this was a great example of multi-tranche financing and why tapping multiple markets for financing makes sense.” He also points out that with an economy like Kenya’s, where the debt-to-GDP ratio is high (see Key Facts), it was important for the debt to be sustainable. “Kenya has strict concessionality levels of 35% for external borrowing,” says d’Ornhjelm. “So this financing is a perfect example of a sustainable and innovative structure incorporating grant elements and buyer’s credits in order to finance infrastructure development in the African continent.”