Treasury eyes Sh5bn from first mobile phone-based bond to be issued in Oct

Money Markets

Treasury secretary Henry Rotich. He said the interest rate from the debt will be higher than that payable on deposits to commercial banks. PHOTO | FILE 

By GEORGE NGIGI, gngigi@ke.nationmedia.com

In Summary

• Members of the public will be able to invest as little as Sh3,000 in the M-Pesa- linked M-Akiba bond.
• The government declined to disclose the rate of return for the bond.
• However, it could mirror the most recently issued five-year paper that is at an interest rate of 13.2 per cent, payable every six months.

The first exclusively mobile phone-based Treasury bond amounting to Sh5 billion is to be sold to the public from mid next month.

The five-year bond – which is also the first of its kind in the world – will be purchased through Safaricom’s mobile money platform, M-Pesa, with the minimum investment amount being Sh3,000, down from the current minimum of Sh50,000 which is purchased through the Central Bank of Kenya (CBK).

The government declined to disclose the rate of return for the bond. However, it could mirror the most recently issued five-year paper that is at an interest (coupon) rate of 13.2 per cent, payable every six months.

“The initial issue will earn an interest rate to be determined shortly during the road shows. The interest rate will be higher than the rate payable on small deposits by commercial banks and other investment channels,” said National Treasury secretary Henry Rotich.

The average fixed deposit rate offered by commercial banks is 6.31 per cent, according to the CBK. Deposit rates offered by banks are, however, dependent on the amount and the duration the amount will be with them.

The minimum amount required to open a fixed deposit is Sh20,000 for a period of three months.

Mr Rotich said the bond will be tax-free unlike the fixed deposits which attract a withholding tax of five per cent.

The Treasury said the M-Akiba bond is an infrastructure debt, meaning the proceeds will be utilised to finance ongoing and new projects such as roads, energy, water and telecommunication.

READ: Sh3,000 is all you need to buy T-bills by mobile

To invest in the bond an investor will be required to open a securities account with the Central Depository and Settlement Corporation (CDSC).
The account can be opened through a mobile phone unlike before when one had to visit the CBK offices or a commercial lender.

A fixed-income dealer who sought anonymity so as to talk freely on the matter said the initiative was good for raising savings in the country, increasing participants in the government securities market and giving the Treasury more pricing power.

He, however, questioned the viability of getting buyers for the low denominations in the secondary market making it difficult to exit the bond.

This, he noted, was likely to lead to rediscounting of the bond with investors opting to sell the security back to the government.

Investment in the bond is capped at Sh140,000 in a single day – equivalent to the maximum statutory transaction amount on mobile platforms – with a buyer allowed to make further investments in subsequent days up to the date of closure of the bond or on full subscription.

More innovative

Interest for the bond will be paid semi-annually through the mobile phone. Investors have the option of holding the bond to maturity or selling it in the secondary market with the expectation of making a capital gain.

The Treasury is targeting to raise Sh229 billion from the domestic market with rise in local interest rates forcing it to be more innovative.

Ethiopia has managed to raise approximately Sh36.5 billion ($346 million) for construction of the largest hydropower dam in Africa by issuing a public bond in denominations as low as Sh129 ($1.22).

The high investment threshold has made purchase of bonds a preserve of the rich, banks, pension funds and insurance companies.

Banks hold 57.2 per cent of issued government securities with pension funds holding 25.3 per cent and insurers 8.8 per cent. Issued government securities total Sh1.3 trillion.