Kenya plans March rollout of mobile phone-based T-bond

What you need to know:

The State had planned to start selling the Sh5 billion five-year bond in October but prevailing interest rates, which had risen to 22 per cent for short-term government paper, meant that the Treasury had to shelve the offer until lower rates come into play.
The mobile phone-based Treasury bond will be sold at minimum denominations of Sh3,000 through the mobile money platform.

The government expects to roll out its mobile phone-based Treasury bond by the end of March after the planned sale in October last year was derailed by volatile interest rates.

Treasury Cabinet secretary Henry Rotich told Business Daily last week the return of stability in interest rates now allows for the launch of the M-Akiba bond, to be sold at minimum denominations of Sh3,000 through the mobile money platform.

The government had planned to start selling the Sh5 billion five-year bond in October but prevailing interest rates, which had risen to 22 per cent for short-term government paper, meant that the Treasury had to shelve the offer until lower rates come into play.

The latest Treasury bond sold—a nine year infrastructure bond— carried an interest rate of 14.75 per cent, while the prevailing interest rates of Treasury bills range between 11.4 and 13.8 per cent.

“The product should be in the market by the end of quarter one. What had delayed the launch was pricing, where interest rates were volatile. But now that it has stabilised I think we can go ahead,” said Mr Rotich.

He added that the actual date of the launch of the bond will be determined later because the Treasury wants to involve the President in the launch, thus tying the event to his diary.

Fixed income analysts at the time the government planned to sell the bond cautioned that it was not prudent to issue a five-year bond, with the short one-year bonds the best option.

READ: Treasury eyes Sh5bn from first mobile phone-based bond

High interest rates usually point towards short-term borrowing by the government and corporates.

Questions had also been raised on the level of public awareness of the bond as it is targeting an entirely new investment demographic.

“This postponement was necessary and the effort may not have been too successful because with a minimum subscription amount of Sh3,000, the offering is targeted at retail investors, and the government has not taken enough steps to educate the public on the offering,” investment firm Cytonn Investments told clients in a market note on the bond.

The five-year bond—an infrastructure bond— will be the first in the world to be sold on the mobile money platform, and is set to bring in small retail investors into the relatively exclusive club of Treasury bond buyers.

Interest for the bond will be paid semi-annually through the mobile phone. Investors have the option of holding the bond to maturity or selling it in the secondary market with the expectation of making capital gain.

Bonds purchased through the usual channel of CBK carry a minimum subscription amount of Sh50,000, or Sh100,000 for infrastructure bonds, with additional buys in multiples of Sh50,000.

This has led to the stock of government securities holdings (totalling Sh1.46 trillion) being dominated by institutional investors, with banks carrying the largest slice at 55.3 per cent, followed by pension funds at 25.4 per cent, insurance firms 8.4 per cent and parastatals 4.7 per cent.

The remainder is held by other investors who include individuals, saccos, self-help groups and investment clubs.