Kenya Pipeline Corporation (KPC) is looking at the prospect of issuing a Eurobond to finance the construction of both inland and external crude oil pipelines, even as economists warned that sustained turmoil in external financial markets following the UK surprise vote to leave the European Union could increase the price of  bonds.

The state-owned corporation is looking for additional capital to fund implementation of mega projects, mainly in storage and transportation of crude oil.

“We are going to look for capital to finance these projects. It is more than likely that we are going to resort to the capital markets but the reality is that will need to go to external sources. It will definitely be an external financing. The concept is there but it needs to be done systematically, otherwise it could be disastrous. We have to look at the timing,” KPC chairman John Ngumi said.

“This is something that we shall start looking at in the next financial year (2016/2017),” added Mr Ngumi.

It is not yet clear how much KPC will be borrowing from foreign lenders but the corporation’s current capital expenditure is estimated at Ksh60 billion ($582.81 million) with this amount expected to balloon after factoring in the costing of the Ethiopian-Kenyan pipeline, an agreement on the joint implementation was signed between the two countries in June.

KPC’s revenue is dollar-denominated thereby minimising its currency exposure.

“In these circumstances it makes absolute sense to borrow in dollar,” said Mr Ngumi.

But it is feared that the Brexit vote will enhance risk aversion among investors, leading to a spike in risk premium on bonds.

“Eurobonds are mostly issued in dollars so exchange rates come heavily into play,” said Daniel Kuyoh, a senior investment analyst at Alpha Africa asset managers.

According to data from Bloomberg the yield on a 10-year government bond in the US stood at 1.5 per cent last week, Canada (1.12 per cent), UK (0.94 per cent) and Germany (negative 0.11 per cent).