Govt Seeks Additional Ksh 10 Billion in a Tap Sale

The Central Bank of Kenya has invited bids for a 15-year amortised infrastructure bond worth up to Ksh10 billion in a tap sale.

The bond will have a 12 percent coupon and an average yield of 13.177 percent and the bank said it will accept bids between Oct. 25 and Nov. 3.

Early this month – October 19 – the government raised Ksh 30.57 Billion in its first 15 Year Infrastructure Bond (with a weighted tenor of 11.25 years) out of the Ksh 30 billion offered.

Cytonn Investments in its review of the bond says:

• Government accepted expensive money, having accepted a yield of 13.2% on a tax-free infrastructure bond, which equates to a 15.5% yield on an equivalent taxable bond, for a tenor of 11.25 years, when adjusting for the 15.0% tax rate,
• 
  Government bond with 11-years to maturity is currently trading at 12.8% in the secondary market, implying that Government paid a premium of 2.7%. This has resulted into a shift in the yield curve causing the yield on an 11-year bond to trade at 13.6%, 80 bps above last week’s yield,
• 
  Key to note is that the lending rate in the market has been capped at 4.0% above the Central Bank Rate (“CBR”), which is currently at 10.0%, implying a maximum lending rate of 14.0%. Infrastructure bonds would have maximum participation from banking institutions, who can now get 15.5% risk-free yield on their assets, without having to lend. If such a trend continues, we will witness reduced credit to the private sector, which will stifle economic growth.

The Government is ahead of its domestic borrowing for this fiscal year having borrowed Kshs 125.8 bn for the current fiscal against a target of Kshs 75.1 bn.

Reuters reported that the National Treasury Cabinet Secretary Henry Rotich said Kenya will return to international markets to borrow when it feels the time is right to supplement the financing for this financial year and in the medium term.

Read: Bids for Kenya’s 15-year Infrastructure Bond Ends Tuesday