Commercial banks have bought into a major $150 million financing deal for off-grid solar power in Kenya, in a sign of growing investor confidence in the electrification of sub-Saharan Africa. Sun King, an off-grid solar energy company, raised the Kenyan-shilling equivalent of $156 million by bundling future payments from its solar-power customers into an asset-backed security that was bought by investors. The deal, arranged by Citi , is one of the largest of its kind and the first to be led by commercial banks. The transaction is expected to enable the sale of about 1.4 million solar home systems to Kenyans, most of whom live in rural areas without access to the electricity grid, according to Sun King. The deal, which pays investors a small premium above the Kenya government’s 6-month bond yield, which currently trades at 8.4%, was structured with two tranches. The senior tranche — a relatively safer slice — of the debt was funded by commercial banks, including Absa , Citi, The Co-operative Bank of Kenya, KCB and Stanbic Bank Kenya. Development finance lenders (DFIs), including the British International Investment and the Dutch development bank FMO — which have traditionally been the primary backers of such ventures in the past — bought into a smaller but riskier “mezzanine” tranche, which would be the first to absorb losses if they occur. “This is an example of how to create structures that enable private capital to come in at scale,” said Jorge Rubio Nava, Citi’s Global head of social finance. This layered structure was critical, providing a safety cushion that made the deal palatable for the commercial lenders. “It’s important for [DFIs] to be in the mezzanine, and that’s where they can provide a cushion to the senior private capital lenders,” Rubio said. The investment arrives amid a challenging macroeconomic backdrop for Kenya. The nation is grappling with persistent budget deficits, with the country paying close to 10% interest on its foreign currency-denominated debt. “The situation may be manageable for now, but without a clear and credible consolidation path backed by external support from the IMF we fear sovereign default will become harder to avoid over time,” said David Omojomolo, Africa economist at Capital Economics, in a note to clients on July 3. Skipping a generation About 600 million people in Africa live without grid-connected electricity, according to a 2022 report by the European Investment Bank. The stretched public finances, not just in Kenya but across sub-Saharan Africa, mean state-led investments to grow the electrical grid remain constrained. Sun King and a growing number of off-grid solar companies, like Ignite Energy Access, are leapfrogging the grid entirely by providing households with solar panels and battery storage. A key hurdle for consumers has been the high upfront cost. A “pay-as-you-go” model, used by Sun King and others, aims to make these off-grid systems more accessible. Customers pay a small deposit of about $7 and then make small weekly payments over 12 to 18 months to own the system and pay off the loan. “What makes this work is that we collect small, steady and predictable payments from millions of customers,” said Anish Thakkar, co-founder of Sun King. “Then we bundle those payments together and securitize them.” The securitized notes are sold to large investors, providing Sun King with the upfront capital it needs to manufacture and distribute more solar systems. The deal builds on a previous $130 million securitization completed in 2023.
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