State raises Sh81bn from infrastructure bond sale

The Central Bank of Kenya head office. file photo | nmg

By CHARLES MWANIKI
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Summary

• Investors bid a record Sh125.3 billion on the 16-year Sh50 billion infrastructure bond whose sale concluded on Tuesday, buoyed by a liquid market and the attraction of the tax free returns on the paper.
• The results of the sale published by the Central Bank of Kenya (CBK) showed that the Treasury took up Sh81.05 billion, at an average of 12.26 percent.
• The amount accepted was enough to cover the government’s initial target of Sh50 billion as well as maturities falling due in January, which stood at Sh31.1 billion.

Investors bid a record Sh125.3 billion on the 16-year Sh50 billion infrastructure bond whose sale concluded on Tuesday, buoyed by a liquid market and the attraction of the tax free returns on the paper.

The results of the sale published by the Central Bank of Kenya (CBK) showed that the Treasury took up Sh81.05 billion, at an average of 12.26 percent.

The amount accepted was enough to cover the government’s initial target of Sh50 billion as well as maturities falling due in January, which stood at Sh31.1 billion.

“We attribute the oversubscription to the bond’s tax-free nature and favourable tenor of 12.5 years (amortised), as well as high market liquidity with the flight of capital from the equities market. We also believe that a significant proportion of the subscriptions were from foreign investors who have a strong preference for Kenya infrastructure bonds,” said Sterling Capital in a note on the bond sale result.

“We expect increased bond trading in the secondary market during the month, attributed to high market liquidity from investors who missed out on the two-year bond and 16-year IFB active in the secondary market.”

The amount raised from the paper now means that the government has taken up a total of Sh136.91 billion from the primary bonds market this month.

In the first week of January, the Treasury concluded the sale of a two-year bond targeting Sh25 billion, that was issued concurrently with the infrastructure paper. The two-year offer raised Sh55.86 billion.

However, while bond maturities amounted to only Sh31.1 billion, the Treasury is facing redemptions worth Sh128.8 billion in the short term Treasury Bills, plus interest payments worth Sh14.8 billion.

The analysts at Sterling said that the total debt service amount of Sh174.7 billion for January means that even with the huge oversubscription, the lion’s share of the money raised this month in bonds and T-bills in particular will be eaten up by debt redemptions rather than new borrowing.

It should however help the government close its domestic borrowing target for the current fiscal year, where financing demands have been elevated by underperformance in revenue collection due to the negative effects of the Covid pandemic.

By the end of November 2020, the Treasury was ahead target in net domestic borrowing in the current fiscal year, having raised Sh360.55 billion out of the revised target of Sh524.69billion.