Infrastructure bond bids pass target by Sh24bn

President Uhuru Kenyatta addresses journalists at State House in Nairobi on status of Eurobond in June. PHOTO | FILE 

By CHARLES MWANIKI

In Summary

• Auction results released by Central Bank of Kenya (CBK) on Thursday showed total bids topped Sh38.77 billion against a target of Sh15 billion, with the government accepting Sh15.8 billion.
• Infrastructure bonds are popular on both the secondary and primary market, the latter due to exemption from withholding tax.

Kenya’s infrastructure bond (IFB) has been oversubscribed 158.5 per cent, revealing huge appetite for State securities even as it pursues a policy of reduced domestic borrowing.

Auction results released by Central Bank of Kenya (CBK) on Thursday showed total bids topped Sh38.77 billion against a target of Sh15 billion, with the government accepting Sh15.8 billion.

This is the second time in the calendar year the government is borrowing to fund infrastructure having issued a Sh174 billion Eurobond midyear.

Infrastructure bonds are popular on both the secondary and primary market, the latter due to exemption from withholding tax.

“Current IFBs account for more than 20 per of total traded volumes in the secondary market indicative of their appeal and high level of liquidity,” said Genghis Capital fixed income analyst Vinita Kotedia.

The preference for the bond in the meantime affected demand for Treasury bills offers this week as well as helped firm the shilling.

The 364-day Treasury bill offer that previously attracted much higher demand than the shorter-term offers was undersubscribed for the first time since June 25.

Last week’s Sh5 billion offer attracted bids worth Sh11 billion, compared to Sh2.7 billion for this week.

The Sh4 billion 182-day paper offer attracted bids worth Sh685 million this week continuing a poor run for the bills seen in the past few months due to an unfavourable yield compared to the 91-day offers.

But even with the latest bond issue and weekly Treasury bill auctions worth Sh12 billion, heavy maturities of government debt have meant cumulative domestic borrowings this fiscal year remains flat.

READ: Infrastructure bond inflows prop shilling

The infrastructure bond will be largely offset by a maturing two-year Sh13.7 billion Treasury bond by the end of this month.

“The net payment means State has not made any tangible borrowing this financial year,” said Kestrel Capital head of fixed income Alexander Muiruri.

Redemptions of government securities before the infrastructure bond issue amounted to Sh191 billion against new issues of Sh177.8 billion in the current financial year, according to data from Kestrel.

With the Treasury overdraft at CBK standing at Sh18 billion, cumulative domestic debt has remained flat standing at Sh1.25 trillion. This is the same as end of June.