Volkswacht Bodensee - Kenya denies defaulting on China railway debt

The $5 billion project, financed 90 percent by China, replaced the so-called "Lunatic Express" -- a line built more than a century ago by colonial power Britain which was notorious for lengthy delays and breakdowns.

Kenya's Business Daily reported that the government failed to repay interest on the loan in the financial year ended June, attracting a fine of 1.312 billion Kenyan shillings ($10.8 million).

But Treasury Cabinet Secretary Ukur Yatani rejected the report as "misinformation", saying the financial position of the East African economic powerhouse was "sound and robust".

"We wish to state categorically that Kenya has never defaulted on its settlement of its debt service obligations to any of its creditors," Yatani said in a statement.

The Standard Gauge Railway (SGR) is Kenya's biggest infrastructure project since independence from Britain in 1963 and was launched as a master plan by East African leaders to connect their nations by rail.

Currently snaking from Mombasa via the capital Nairobi to the Rift Valley town of Naivasha, it is planned to eventually link Uganda, Rwanda, South Sudan, Burundi and Ethiopia.

The railway was to be managed by the Chinese contractor for five years before being handed over to the Kenyan government.

But it has posted losses, with analysts worrying the trend could continue after newly elected President William Ruto last month reversed a policy that made it mandatory for cargo to use the railway.

China is Kenya's second-largest lender after the World Bank and has funded a number of costly infrastructure projects that have raised concerns about Nairobi taking on more debt than it can afford.

The country's public debt load in June stood at 8.6 trillion shillings ($71.1 billion), an 11.5 percent rise from a year earlier, according to government figures.

Loan interest repayments have however shot up in recent months as the value of the shilling rapidly loses ground against international currencies, trading at 121 to the dollar on Thursday.

Yatani said there was no cause for alarm as the country frequently undergoes independent sovereign rating reviews which are published widely.

"At no time has Kenya been flagged as a country defaulting on its external debt obligations," he added.

Y.Bouchard--BTB