Kenya sends right signal by rejecting $500m loan

National Treasury of Kenya. The country rejected $500 million offered by investors in the latest infrastructure bond sale as it seeks to keep a lid on the price of public debt. PHOTO FILE | NATION 

In Summary

• The investors were offering Ksh55.7 billion ($557 million) at 13 per cent to the government which was looking for Ksh40 billion ($400 million).
• The government instead took up Ksh5 billion ($50 million) at 12.5 per cent.
• The rejection signals a liquid market in the coming days and this could drive oversubscription in other government securities.

By GEORGE KAMAU
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Kenya's Treasury rejected Ksh50 billion ($500 million) offered by investors in the latest infrastructure bond sale as it seeks to keep a lid on the price of public debt.

The investors were offering Ksh55.7 billion ($557 million) at 13 per cent to the government which was looking for Ksh40 billion ($400 million). The government instead took up Ksh5 billion ($50 million) at 12.5 per cent.

Analysts at Kestrel Capital had estimated that the investors would offer the cash at an average of 12.65 per cent, indicating that they calculated that the government was in a tight financial position.

Treasury had not disclosed the infrastructure project that was to be supported by the cash raised, other than indicate that the funds may well be used to cover budget funding.

Domestic borrowing

The government recently disclosed it would borrow Ksh18 billion ($180 million) more than it had budgeted for in the domestic market during this financial year following a shortfall in revenues.

The National Treasury plans to borrow Ksh293.8 billion ($2.9 billion) from the local market this year up from the budgeted Ksh275.6 billion ($2.7 billion).

Infrastructure bond

This follows a Ksh52.6 billion ($526 million) shortfall in revenues in the first five months of the current financial year. To cover the gap the government will also increase its uptake of commercial loans this year by Ksh50 billion ($500 million).

This state of affairs could have been what motivated investors to roll the dice and bid high for the infrastructure bond believing that government was in a bind and in need of cash.

The rejection signals a liquid market in the coming days and this could drive oversubscription in other government securities and thereby pull down the price of debt.

On the short-term, securities interest rates remained stable with the government picking Ksh25.6 billion ($250.6 million) from the less than one year papers against a target of Ksh24 billion ($234.9 million).