Treasury to borrow Sh75bn in January dual bond auction

The Central Bank of Kenya building in Nairobi. FILE

By CHARLES MWANIKI
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Summary

• The Central Bank of Kenya, acting as the government’s fiscal agent, has advertised the sale of a 16-year infrastructure bond (IFB) for Sh50 billion, and a two- year paper that is meant to raise Sh25 billion.
• The sale opened on Tuesday and will run until January 5 for the two-year paper and January 19 for the infrastructure bond.
• The short tenor of the two-year and tax-free status of the IFB are seen by analysts as key in attracting investor appetite for the issuance.

The Treasury wants to borrow Sh75 billion from the domestic market in January in a dual bond issue that will include the second infrastructure paper of the fiscal year.

The Central Bank of Kenya, acting as the government’s fiscal agent, has advertised the sale of a 16-year infrastructure bond (IFB) for Sh50 billion, and a two- year paper that is meant to raise Sh25 billion.

The sale opened on Tuesday and will run until January 5 for the two-year paper and January 19 for the infrastructure bond.

The short tenor of the two-year and tax-free status of the IFB are seen by analysts as key in attracting investor appetite for the issuance. This is also seen as a response to the sub-par performance of the December bond sale which raised only Sh18.3 billion against a target of Sh40 billion, prompting a tap sale which closed on December 23.

“The papers are likely to attract considerable investor interest given the favourable tenors coupled with the IFB’s tax-free allure. That said, given the anticipated moderate liquidity squeeze into the New Year, the papers could attract a hefty premium buttressing expectations of higher interest rates,” said analysts at NCBA in a note on the January bond sale.

This is the second infrastructure paper being sold in the current fiscal year, following the Sh70 billion, 11-year bond that was floated in August. It attracted bids worth Sh101.5 billion, with the government taking up Sh78.56 billion.

The two-year bond is the first of this duration issued since January 2019, marking a break with the recent trend where the Treasury has been floating medium and long term bonds in a bid to lengthen the maturity profile of domestic debt.

The proceeds of the IFB will go towards financing of infrastructure projects planned for the fiscal year, while those of the two year offering will go towards general budgetary support.

The Treasury has so far raised a net borrowing of Sh279 billion from the domestic market since July, representing about 57 percent of the target for the fiscal year.