Central Bank seeks to raise Sh70 billion from re-opening of three bonds

The Central Bank of Kenya in Nairobi. PHOTO | NMG    

By GERALD ANDAE More by this Author

The Central Bank of Kenya (CBK) is seeking to raise a total of Sh70 billion from the reopening of three bonds including a six-year infrastructure paper which came with a

tax-free interest rate of 13.215 per cent when it was first auctioned on December 2.

The infrastructure bond is on sale until December 22 or upon attainment of the target of Sh20 billion.

Investors eyeing the paper will pay a small premium of 0.741 per cent on the principal to adjust for their relatively late entry ahead of the first interest payment of June 5, 2023.

Investors can get different returns on the same bond, with the adjustments coming from a few key variables.

These are the application of a discount or premium on the principal to be paid by an investor besides the time remaining to the next interest payment. Interest on government bonds is paid twice per annum.

The infrastructure bond did not raise money in the first auction but was used to refinance other securities which were due to mature early next month.

READ: CBK seeks to raise Sh60bn new infrastructure bond

The CBK converted Sh49.1 billion worth of T-bills and a two-year bond into a six-year security as part of the State’s debt refinancing strategy.

The transaction, known as a switch, will see net interest income for those who participated in the conversion rally by up to 72 per cent.

The CBK had targeted to switch securities worth a total of Sh87.8 billion.

The government’s fiscal agent is also seeking Sh50 billion from the reopening of a five-year paper and 15-year security.

The two instruments will be on sale until January 10, 2023.

The five-year bond, which has 2.4 years left to maturity, has an interest or coupon rate of 11.667 per cent that was set when it was first auctioned in 2020.

The 15-year security, first sold in April this year, has a coupon rate of 13.942 per cent.

Investors will be free to state the returns they want on the two securities which will be expressed as a discount, par or premium on principal based on what CBK will accept.

ALSO READ: CBK raises Sh24bn from December bond auctions

Interest in government bonds and T-bills has been rising in recent months, reflecting the State’s funding pressures and investors’ demand for adequate returns amid high inflation and the weakening of the Kenya shilling.

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