Road construction. The minimum investment required for the infrastructure paper is Sh100,000 but an investor can thereafter add amounts in multiples of Sh50,000. PHOTO | FILE
The Treasury has floated the second infrastructure bond this year with the intention of raising Sh30 billion at an interest rate of 11 per cent.
Interest earned from the bond is exempted from withholding tax imposed on other Treasury instruments’ earnings at the rate of 15 per cent.
The new nine-year bond’s yield will be determined by investors at the auction, meaning they have the leeway to quote at a discount, at par or at a premium to the face value.
“The Central Bank of Kenya invites bids for the nine-year fixed-coupon bond to finance infrastructure projects in the following areas during the financial year 2015/16: energy Sh9.65 billion, water Sh10 billion, and transport roads Sh10.35 billion,” said the CBK in press statement.
The minimum investment required for the infrastructure paper is Sh100,000 but an investor can thereafter add amounts in multiples of Sh50,000. For the other Treasury bonds, the minimum investment required is Sh50,000 with similar additional amounts or multiples.
The bond is amortised, meaning it will be redeemed in phases. Phase one will be in December 2020 when 34.5 per cent of the principal will be paid back, the second one in December 2022 with a payment of 49.1 per cent of the outstanding principal and the last one in December 2024.
The last infrastructure bond, with a tenor of 12 years, was issued in March and raised Sh25.7 billion. It traded at an yield of between 11.06 and 13.1278 per cent last Friday.
The newly bond is likely to benefit from the current market liquidity that has seen a five-year bond oversubscribed with bids amounting to Sh32 billion against an offer of Sh20 billion.
Ample liquidity is also shown by the fall in the rate at which banks lend to each other overnight to about six per cent on average last week compared to over 10 per cent in the previous week.
“The money market was relatively liquid during the week ending November 25, 2015….The average interbank rate declined to 6.0 per cent in the week ending November 25, 2015 from 10.4 per cent in the previous week,” said the CBK in its weekly update on the financial markets.
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