Capital Markets

CBK eyes Sh5 billion from reopened bond sale


The Central Bank of Kenya. PHOTO | DENNIS ONSONGO | NMG

The Central Bank of Kenya (CBK) is seeking Sh5 billion from the reopened 14-year infrastructure bond, which investors oversubscribed in the initial auction that closed last week.

The reopened paper will be on sale from November 16-22 or upon attainment of the targeted amount, whichever comes first.

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The initial sale of the infrastructure bond that kicked off on October 28 had targeted Sh 60 billion but raised Sh 75.6 billion as more bids were accepted.

Infrastructure bonds have typically been oversubscribed by a large margin, with the CBK — the government’s fiscal agent — taking significantly more than the amount advertised in the prospectuses.

The interest rate for the tap sale is the same as the accepted bids of the initial bond auction which had an average rate of 13.94 per cent — making it the most lucrative paper.

The rate beat that of the 18-year infrastructure bond sold in June, which is paying interest at 13.74 per cent.

A 10-year bond sold in 2016 has a coupon of 15.04 per cent, but its interest payments are subject to withholding tax, which reduces the net interest to 13.53 per cent.

Infrastructure bonds are typically oversubscribed due to their tax-free status.

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Earlier bond sales were underperforming due to the rate standoff between the CBK and investors, who have demanded that the government pays more to reflect global trends of rising interest rates and to cover against higher inflation and currency depreciation.

Major investors in treasuries have been pushing for higher rates amid the rising cost of living and the weakening of the shilling against major world currencies.

The government has relied on domestic borrowing to plug the budget deficit after rising interest rates in developed economies made borrowing from external sources untenable for the country.

Market data indicate the government can expect to pay rates of between 12 per cent and 14 per cent if it were to issue a new Eurobond which is denominated in US dollars.

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