Markets & Finance

Sukuk bond issue to await law change

henry

National Treasury Cabinet Secretary Henry Rotich. PHOTO | FILE

The Treasury must change the Banking Act before it issues a Sukuk bond, a factor likely to hold up the issue of an Islamic paper whose proceeds will be used to clear a syndicated loan the government is in the process of procuring.

National Treasury secretary, Henry Rotich, said the government was still keen on issuing the Shariah-compliant bond despite securing the Sh75 billion loan expected to be disbursed before month end.

“We have not abandoned it, but there are a few legislations – mainly the Banking Act – which we have to review to allow such a facility to be issued,” said Mr Rotich in an interview with the Business Daily.

Kenya is targeting to raise cash from the oil-rich Middle East countries through the Islamic bond. The Treasury plans to establish a National Sharia Supervisory Council to advise on development of products that are compliant with the Sharia law.

Mr Rotich said the new syndicated loan will be arranged largely by the banks involved in the Sh50 billion loan acquired in 2012. The earlier loan settled last year using cash raised from the sovereign bond was arranged by 13 banks.

The Treasury in the meanwhile postponed the issue of retail bond, M-Akiba, for the second time Wednesday as it sought the presence of President Uhuru Kenyatta at the event.

Mr Rotich said the government is yet to determine the rate of return for the Sh5 billion bond that is to be sold exclusively through mobile money.

“We have not firmed up because we expect interest rates to come down – there is a bit of a temporary distortion – to where it is sustainable,” said Mr Rotich.

Interest rates have spiked in the last one month, with the indicative 91-day Treasury bill yielding 22.1 per cent up from 13.9 per cent an year earlier.

READ: State's one-year bond to attract over 20pc interest

The government hopes to sway small investors from low-yielding bank accounts. M-Akiba will sell at a minimum of Sh3,000.

The investment has no upper limit but investors can only put in a maximum of Sh140,000 in a day with extra investment made in subsequent days.

The State’s borrowing has come under scrutiny following concerns of unsustainable debt pile-up. Only last year the country raised Sh270 billion through a sovereign bond.

The Treasury has however recently experienced liquidity challenges attributed to low revenue collections and ceaseless demand for money by spending agencies. It has promised tighter fiscal policy and improved cash management to ensure there is liquidity in the market.

Kenya’s debt is currently estimated at Sh2.9 trillion which is 51.3 per cent of the gross domestic product (GDP), meaning that more than half of the country’s annual revenue is effectively mortgaged in debt.

International bodies including IMF and World Bank have recently said Kenya has more room to borrow and spend on infrastructure as long as the projected revenues are realised.