Treasury targets Sh18bn in February bond tap sale

Central Bank of Kenya. FILE PHOTO | NMG

By ELIZABETH KIVUVA
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Summary

• The Treasury has opened a tap sale on the undersubscribed February bond issue, seeking to raise an additional Sh18 billion.
• The Central Bank of Kenya (CBK) which is the government’s fiscal agent, said the tap sale will run until February 17, but can be closed earlier of the government hits its intended target before that date.
• The bond’s initial sale that closed on February 2 raised a total of Sh32.12 billion out of a target of Sh50 billion, with the government now looking to make up the difference through the tap sale.

The Treasury has opened a tap sale on the undersubscribed February bond issue, seeking to raise an additional Sh18 billion.

The Central Bank of Kenya (CBK) which is the government’s fiscal agent, said the tap sale will run until February 17, but can be closed earlier of the government hits its intended target before that date.

The bond’s initial sale that closed on February 2 raised a total of Sh32.12 billion out of a target of Sh50 billion, with the government now looking to make up the difference through the tap sale.

The dual tranche bond, consisting of a reopened 15-year paper first sold in 2013 and 20-year paper first issued in 2012, will pay investors 11.78 percent and 12.59 percent respectively, with these being the average rates on the initial sale from earlier this month.

Although liquidity has improved in the market since the initial sale—ideally helping the tap sale hit its target—analysts said that the issues that made the first sale unpopular remain, mainly the saturation of the market with bonds of the seven to eight year tenor.

“We do not anticipate full uptake of the tap sale based on the high concentration around these tenors making them unpopular with investors,” said analysts at Sterling Capital Wednesday in a note on the tap sale.

“The CBK has reopened a lot of bonds with a maturity profile of about seven to eight years resulting in a perceived oversupply of the tenors.”

The underperformance of the February issue has also been due to the huge uptake of the 16-year infrastructure bond sale issued in January, that saw investors bid Sh125.47 billion against a target of Sh50 billion (the state accepted Sh81.05 billion from the paper) which had a mop-up effect of liquidity in the bonds segment.