Project Finance and Infrastructure Lending: Security, Bankruptcy, and Foreign Investment Rules.
Project finance and infrastructure lending play a vital role in Kenya’s efforts to build modern roads, power plants, ports, and other essential facilities that support economic growth. In these transactions, lenders provide funding based primarily on the expected cash flows from the completed project rather than the general credit of the sponsor. This approach allows Kenya to attract large-scale investment while spreading risks among private parties, but it also creates distinct legal challenges around security, bankruptcy protection, and rules governing foreign capital.
Banks and development finance institutions need clear, enforceable rights over project assets to feel confident advancing funds over long periods, often 15 to 30 years. Borrowers and project companies, on the other hand, seek flexibility to operate the project day-to-day and reasonable protections if difficulties arise. The tension between these positions becomes most visible when projects face delays, cost overruns, or revenue shortfalls, situations that have occurred in several Kenyan infrastructure initiatives. Kenyan law attempts to balance these interests through a mix of modern statutes and practical court oversight, yet gaps and recent disputes continue to influence how deals are structured.
In practice, lawyers and bankers spend considerable time negotiating security packages, ensuring regulatory approvals, and planning for potential insolvency scenarios. Foreign lenders, who often bring much-needed long-term capital, must navigate local registration rules and enforcement procedures. Understanding these elements helps both financial institutions and their clients make informed decisions and structure transactions that can withstand challenges.
Security Arrangements in Project Finance
Lenders in Kenyan project finance transactions typically require a comprehensive security package that covers the project company’s assets, contracts, and revenues. This package often includes charges over land and fixed assets, assignments of key contracts such as power purchase agreements or tolling rights, and security over bank accounts and receivables. The goal is to give lenders control over the assets that generate repayment while allowing the borrower to continue operating the project under normal circumstances.
For immovable property such as land and buildings, security is created through a formal charge registered at the relevant lands registry under the Land Registration Act, 2012. Where the chargor is a company, the charge must also be registered with the Companies Registry within the prescribed time. Additional consents may be needed, including from the Land Control Board for agricultural land or from a spouse if the property has matrimonial aspects. These requirements add steps and costs but help ensure the security is properly perfected and difficult for third parties to challenge.
Movable assets and intangible rights fall under the Movable Property Security Rights Act, 2017. Lenders can take security over machinery, vehicles, receivables, and even future assets through a security agreement, perfected by registering a notice at the collateral registry. This unified system simplifies taking security compared to older fragmented rules, yet lenders still need to act promptly to register and maintain priority. In practice, well-advised borrowers negotiate limits on how much day-to-day control lenders can exercise before default, while banks insist on notification rights and step-in options to protect project continuity.
Bankruptcy and Insolvency Considerations
The Insolvency Act, 2015 governs restructuring and liquidation proceedings for companies in Kenya. Once administration or liquidation begins, an automatic moratorium generally prevents creditors from enforcing security without court leave or administrator consent. This pause aims to give the distressed company breathing room to reorganize, but it can create uncertainty for project lenders who rely on predictable enforcement timelines.
Secured creditors retain important protections. They may realize their security in accordance with the charge terms, subject to the moratorium, or elect to value the security and prove for any shortfall as an unsecured creditor. The Act also contains rules on preferential creditors and potential challenges to floating charges created shortly before insolvency. In project finance, where the project company is often a special purpose vehicle with limited other assets, these provisions influence how lenders structure priority and inter-creditor arrangements.
From the borrower’s perspective, the rescue-oriented features of the Insolvency Act can preserve jobs and project value rather than forcing immediate sale of assets. Lenders, however, emphasize the need for clear enforcement rights to maintain confidence in long-term infrastructure deals. Courts have shown willingness to balance these interests, but parties still spend significant effort drafting robust security and direct agreements that allow lenders to step into key contracts if the project company fails. Recent practice suggests that careful structuring at the outset reduces disputes when financial stress occurs.
Foreign Investment Rules and Lender Participation
Kenya maintains a generally open approach to foreign investment in infrastructure and project finance. The Constitution and statutes such as the Foreign Investments Protection Act allow substantial foreign ownership in most sectors, with incentives available for priority areas including renewable energy and major infrastructure. The Public Private Partnerships Act, 2021 provides a structured framework for private sector participation, including national and county-level projects, with provisions for government support measures and a project facilitation fund.
Foreign lenders nevertheless face compliance obligations. Under Section 974 of the Companies Act, 2015, a foreign company must register in Kenya if it carries on business here, with recent court decisions highlighting the consequences of non-compliance. In the notable case of Stichting Rabo Bank Foundation v Ava Chem Limited & Another [2024] KEHC 9931 (KLR), the High Court held that an unregistered foreign lender lacked standing to sue for recovery, even where the debt was admitted. This ruling has prompted foreign institutions to review structures, often through local branches or carefully drafted arrangements that minimize the risk of being deemed to carry on business locally.
Both lenders and borrowers benefit when foreign capital flows smoothly, yet the need for local registration and licensing, particularly following amendments expanding Central Bank of Kenya oversight, adds layers of cost and time. Financial institutions weigh these requirements against the opportunities in Kenya’s growing infrastructure pipeline, while project sponsors seek partners who understand and can navigate the regulatory landscape efficiently. Ongoing discussions about safe harbour provisions or clearer guidance reflect a shared interest in maintaining Kenya’s attractiveness to international capital.
Conclusion
Project finance and infrastructure lending in Kenya rest on a foundation of security mechanisms, insolvency rules, and foreign investment frameworks that seek to encourage investment while protecting local interests. Strong security registration systems, the modernized Movable Property Security Rights Act, and the PPP Act 2021 provide useful tools, yet practical challenges remain around enforcement speed, foreign lender registration, and balancing creditor and debtor rights in distress situations.
For banks and other lenders, the key practical implication is the need for thorough due diligence, timely perfection of security, and clear contractual safeguards. Borrowers and project companies gain from transparent rules that allow them to access capital on reasonable terms and restructure where viable. Both sides benefit when transactions are structured with realistic risk allocation and awareness of local court approaches.
Looking ahead, Kenya appears headed toward further refinements, potentially including clarifications on foreign lender standing, expanded use of infrastructure funds, and continued alignment with international standards for green and climate-related financing. These developments, if implemented thoughtfully, should strengthen confidence in project finance while supporting the country’s infrastructure ambitions and broader economic objectives.