Markets & Finance

Sh30bn infrastructure bond bids cause T-bills undersubscription


The Central Bank of Kenya head office in Nairobi. PHOTO | FILE

Bidding for Treasury bills fell for the first time in weeks as attention turned to the higher-yielding Sh30 billion 15-year infrastructure bond auctioned on Wednesday.

The 15-year tenor infrastructure bond, the longest ever, was fully subscribed by investors, with the government taking Sh30.6 billion from the Sh35 billion offered by investors at a rate of 13.17 per cent.

Concurrently, the Treasury failed to raise the full amount on offer from the 91 and 364-day T-bills, even though the interest rate on the latter rose slightly to 10.4 per cent from 10.3 per cent the previous week.

“The market remained static, with all eyes on the primary (bond) auction,” said Genghis Capital in a market briefing note on Wednesday.
Data published by the Central Bank of Kenya (CBK) Thursday showed that on the 91-day paper, investors put in 147 bids bid worth only Sh1.36 billion against the offered Sh4 billion, a 34 per cent performance rate.

The government took up all the money on offer at a rate of 7.69 per cent from the previous week’s 7.72 per cent.

On the longer tenor T-bills, bidders opted for the six-month paper over the one-year offer, with the two currently offering similar interest rates.

Investors offered Sh10 billion for the Sh6 billion 182-day T-bill in 328 bids (167 per cent subscription) with Sh8.1 billion accepted. On the 364-day T-bill, there were 176 bids worth Sh4.74 billion, which was all taken up by the government.

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There was once again high maturities on the Treasury bill segment, which resulted in the government making net payments instead of adding to new borrowing from this week’s auctions.

The CBK data shows that the total redemptions on all three tenors of the short-term debt stood at Sh26.4 billion, outstripping the Sh14.2 billion taken up.

The infrastructure bond, however, did bridge the refinancing gap after achieving full subscription.

It attracted sizeable foreign investor demand due to its tax-free status, which also helped the shilling make a marginal gain on the dollar in the first three days of the week.
Analysts at Genghis say there remains a strong case for the government to do a tap sale on the bond, whose proceeds are meant to fund projects of a total value of Sh40 billion in the roads sector (Sh10 billion), energy (Sh10 billion) and water (Sh20 billion).

This was the second infrastructure bond sold this year after the nine-year offer in May, which raised Sh34 billion at a rate of 13.34 per cent.