Gambling Revenues to Fund Talanta Stadium Payouts as KSh 44.79 Billion Bond Faces Long-Term Uncertainty

Investors who financed the construction of the Talanta Stadium are set to receive a KSh 6.5 billion payout starting July 7, funded by proceeds from Kenya's burgeoning gambling industry.

In 2023, the government raised Sh44.79 billion through a 15-year bond, with returns specifically tied to betting taxes collected under the Sports, Arts and Social Development Fund (SASDF).

This upcoming payment marks the first full-year distribution for bondholders, who received an initial Sh3.25 billion on January 7.

According to Business Daily, projections show that revenue from gambling taxes is expected to climb by 35.3 per cent, reaching Sh24.8 billion this financial year, up from Sh18.3 billion previously.

This significant increase is anticipated to comfortably cover the government's obligations to the bond investors.

The Sports Fund, primarily sustained by levies on the betting sector, targets a monthly collection of Sh2.07 billion, highlighting the substantial scale of gambling expenditure in the country.

"This reflects the projected increase in appropriation-in-aid collections to the Sports, Arts and Social Development Fund," stated Albert Mwenda, Director of Budget at the National Treasury, as quoted by Business Daily.

"The Ministry of Sports projects to collect Sh2.07 billion per month, which includes the amount to be set aside for the settlement of the loan linked to the Talanta Stadium."

The payment schedule involves two equal instalments. Investors will receive the first Sh3.25 billion coupon payment on July 7, with the second to follow on January 7, 2025.

A fund manager receives the tax revenue daily, investing it before making the scheduled coupon payments. The total payout to investors includes both the interest and any investment income generated by the fund manager.

Liaison Capital, the securitisation managers, have not disclosed the exact amount paid in January, as the figure varies with each payment cycle based on investment performance.

The bond offers a 15.04 per cent rate of return, which is projected to earn investors Sh57.6 billion in interest over its 15-year lifespan.

Notably, this interest income is tax-exempt, giving it a status similar to government-issued infrastructure bonds.

According to the bond's information memorandum, the government has a three-day grace period for payments, setting an effective deadline of July 10 to avoid default. To mitigate risks of delayed disbursements from the Treasury, the issuer, Linzi FinCo 003 Trust (a special vehicle of Liaison Group), has secured a standby letter of credit with KCB Bank.

The funds raised from the bond were allocated to complete the 60,000-seater Talanta Stadium. As of last week, a Ministry of Sports site tour confirmed the stadium was 91 per cent complete, a significant leap from just 37 per cent in April of last year.

The contractor, China Roads and Bridge Corporation, continued work on the project while the government secured financing.

The Ministry of Defence was tasked with supervising the project, leveraging the military's reputation for efficient execution.

The Raila Odinga Stadium is a cornerstone of Kenya's preparations to co-host the 2027 Africa Cup of Nations (AFCON) alongside Uganda and Tanzania.

The National Treasury has allocated an additional Sh1.5 billion for the "Pamoja AFCON" games, with funds designated for temporary staff wages (Sh828 million), advertising (Sh200 million), and insurance (Sh200 million).

However, a potential challenge looms on the horizon. The Sports Fund's mandate is set to expire in August 2028, just one year after the tournament.

With the bond having a 15-year term, the government has not yet provided guarantees for the fund's renewal, creating uncertainty for long-term payouts.

Investors in the Talanta bond were not provided with a direct government guarantee. Instead, their security was based on the Public Finance Management Act, which underpins the Sports Fund.

This legislation stipulates that should the fund be dissolved; the National Treasury is obligated to assume its financial liabilities.