The State will withdraw the housing allowance of some Kenya Defence Forces (KDF) officers and use the funds to repay investors who bought the Sh3 billion Sukuk bond used to finance the construction of military housing.
New disclosures reveal that the housing allowances of military personnel occupying the 95 percent-complete housing units will be ringfenced for bond repayments over the next 13 years.
Holders of the bond, which was issued in May 2024 to finance the construction of 3,069 housing units, will start receiving payments in August after the expiry of the two-year moratorium.
Liaison Group issued the Shariah-compliant bond, while China Railway No. 10 Engineering Group was the contractor and injected an additional Sh346.7 million into the project.
“Looking ahead, operating-phase liquidity is also expected to be adequate, underpinned by predictable receivables secured through first-line deductions from the monthly salaries of unit-holding officers, with collections directed into a Shariah-compliant account under the Trustee’s control,” GCR Ratings said in a credit rating report released earlier this week.
“While residual timeline risk may lead to minor delays in cash flow commencement, the standby letter of credit provides sufficient coverage to address any short-term liquidity gaps,” it added.
The ringfenced housing allowances were among the key factors cited by GCR Ratings in assigning the Sukuk an A+ rating with a stable outlook.
The rating indicates that the issuer, Liaison Group, has a strong capacity to meet its repayment obligations.
The houses are being built on military land in Roysambu, Kwambuzi in Laikipia County, Mariakani in Kilifi County, and Lanet and Gilgil in Nakuru County.
Rent for the units will depend on their size and location, with the development comprising bedsitters, one-bedroom and two-bedroom units. The Roysambu site was completed in February 2026, allowing the contractor to redeploy resources to the remaining sites.
Uptake of the units will be voluntary and subject to application.
The Sukuk has a 15-year tenor and will mature in May 2039. Capital repayments and returns to investors will be disbursed quarterly in arrears after the two-year moratorium. The bond offers a return of 11.8 percent.
Investors trading the Sukuk in the secondary market must comply with Shariah principles, which prohibit earning interest or selling the securities at a profit.
A Sukuk is the Islamic equivalent of a conventional bond. Unlike conventional bonds, where investors earn interest, Sukuk investors acquire an ownership interest in the underlying asset and receive returns linked to the asset’s performance.
The project is backed by a government-supported standby letter of credit covering a rolling amount equivalent to one quarterly payment to investors, ensuring timely repayments should collections from the military fall short.
According to the latest project progress report, construction has remained within budget, with no cost overruns reported.
Besides the Sh3 billion Sukuk, the project has received an additional Sh346.7 million from the contractor, China Railway No. 10 Engineering Group (CREC10). The government has also been allocating Sh500 million annually since the project started in 2024.
The project falls under the Affordable Housing Programme.
