Infrastructure Bond Issued In April By GoK Oversubscribed

For the month of April, the Kenyan Government issued a 9-year infrastructure bond, IFB1/2020/9 with an effective tenor of 9.0-years and a coupon rate of 10.9 percent.

The April bond was in a bid to raise 60 billion shillings for funding of infrastructure projects in the FY’2019/20 budget estimates.

The bond was oversubscribed, with the government receiving bids worth 68.4 billion shillings higher than the quantum of 60.0 billion shillings translating to a subscription rate of 114.0 percent.

The high subscription rate is mainly attributable to the short tenor of the bond as well as the tax-free incentive for infrastructure bonds which translates to a higher return.

The yield on the tax-free bond came in at 12.3 percent, with the government accepting 39.0 billion shillings out of the 68.4 billion shillings worth of bids received, translating to an acceptance rate of 57.0 percent.

During the month, the government had a tap-sale for the same bond in a bid to raise an additional 21.0 billion shillings.

The tap-sale was oversubscribed with the government receiving bids worth 37.8 billion shillings higher than the issue’s quantum of 21.0 billion shillings translating to a subscription rate of 180.2 percent.

The yield on the tap sale for the bond came in at 12.1 percent, with the government accepting 35.4 billion shillings out of the 37.8 billion shillings worth of bids received, translating to an acceptance rate of 93.5 percent.

Given the tax-free nature of the bond, this is comparable to a Yield to Maturity (YTM) of 13.3 percent, on a normal bond with the assumption of a 15.0 percent withholding tax for a bond with the same effective tenor.

In the money markets, 3-month bank placements ended the week at 7.9 percent (based on what we have been offered by various banks)

The 91-day T-bill remained unchanged at 7.2 percent similar to what was recorded the previous week. The average of Top 5 Money Market Funds remained unchanged at 10.1 percent similar to what was recorded the previous week.

The yield on the Cytonn Money Market also remained unchanged at 11.0 percent.

READ: What is the Difference Between Bond and Bail in Kenya?