Treasury seeks Sh25bn from 12-year infrastructure bond
Proceeds from sale of the 12-year infrastructure bond will go towards funding projects in the transport sector. PHOTO | FILE
What you need to know:
Analysts expect the bond to attract heavy demand given the roll-overs from maturing securities and the annual interest rate of 11 per cent that is to be paid to investors.
The bond is also expected to give a major boost to the shilling, which some analysts have projected may reach Sh95 to the dollar by the end of the year.
The Treasury has launched the sale of a Sh25 billion 12-year infrastructure bond, with analysts saying they expect it to attract significant interest from both local and foreign investors.
An infrastructure bond normally attracts heavy interest from investors whenever floated because it is not taxed, meaning it has relatively higher returns.
The principal amount is also going to be repaid over the life time of the bond —showing that it is spread out —rather than at the end of the period.
Analysts at Genghis Capital expect the bond to attract heavy demand given the roll-overs from maturing securities and the annual interest rate of 11 per cent that is to be paid to investors.
“We expect high participation levels at the auction as the offer will attract roll-overs of the maturing fixed two-year bond of 2013 (FXD2/2013/2) worth Sh19.96 billion due in March,” said Genghis fixed-income analyst, Vinita Kotedia in an update.
The bond is also expected to give a major boost to the shilling, which some analysts have projected may reach Sh95 to the dollar by the end of the year.
“We expect the shilling to track a steady trend, trading between the levels of Sh91.15-91.55 … the exchange rate will be supported by inflows from foreign investors who will be buying into the infrastructure bond,” said Ms Kotedia.
The proceeds of the infrastructure bond and any subsequent re-openings (to a maximum of Sh50 billion) will be used for funding projects in the transport and energy sectors, at Sh39.1 billion and Sh10.9 billion respectively.
Shortfall
According to a government borrowing scorecard compiled by Nairobi-based investment bank Kestrel Capital, the first nine months of the current financial year have seen approximately Sh491.97 billion raised against maturities of Sh399.99 billion, resulting in new borrowing of Sh91.99 billion by mid this month.
“We currently project a shortfall in borrowing of Sh9.71 billion and outstanding government debt redemptions of Sh140.24 billion for the remainder of the 2014/15 financial year,” said Kestrel.
The rise in net new borrowing in February was mainly attributed to high subscriptions of bond issues in the month of February 2015 coupled with low redemptions.
This, however, means that an upward revision of the domestic borrowing target is likely, given that the original target of Sh101.7 billion is nearly being eclipsed through the infrastructure bond and new Treasury Bill issues.
The Treasury has proposed to extend the target to Sh144.8 billion as per the Budget Policy Statement 2015/16.
Data from the Nairobi Securities Exchange (NSE) shows that bond turnover in the secondary market for the first two months of the year was 19 per cent higher compared to a similar period in 2014.
The combined turnover for January and February stood at Sh83.51 billion, compared to Sh70.22 billion for the similar period a year ago.
According to Ms Kotedia, bond turnover accelerated in February mainly due to higher trading on the newly issued two-year and the re-opened 10-year bonds, which was due to high liquidity in the market.
Bond turnover for the whole of 2014 came in at Sh506 billion, compared to Sh452.5 billion for the whole of 2013.
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