Capital Markets

CBK switches Sh20bn bills to long-term bonds

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Central Bank of Kenya governor Patrick Njoroge. PHOTO | DIANA NGILA | NMG

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Summary

  • The CBK said the switch bond is part of the initiatives that have helped decrease the amount of Treasury bills by 6.9 per cent to Sh907.7 billion in June 2020 from Sh975.3 billion in June 2019.
  • The government has not issued another switch bond but CBK governor Patrick Njoroge had indicated it would continue to feature due to the pressure to repay maturing debt.

Kenya’s first conversion of a Treasury bill into a long-term bond has helped the government delay the repayment of Sh20.2 billion.

The Central Bank of Kenya (CBK), the government’s fiscal agent, gave investors who bought Sh25.6 billion worth of one-year Treasury bill in June last year an option to convert it into a six-year tax-free infrastructure bond as it sought to delay maturities.

The switch auction received an 83 per cent subscription, with the CBK accepting Sh20.2 billion out of the Sh21.1 billion offered on a voluntary basis.

The infrastructure bond has a 10.2 per cent coupon or fixed interest rate.

The CBK said the switch bond is part of the initiatives that have helped decrease the amount of Treasury bills by 6.9 per cent to Sh907.7 billion in June 2020 from Sh975.3 billion in June 2019.

“CBK conducted the inaugural switch on June 1,2020 with the objective of lengthening the maturity profile of existing debt and to rebalance the T-bill portfolio which had concentration in the 364-day T-bills, accounting for 86.5 per cent,” CBK said in the 2020 annual report.

“Consequently, Treasury bills decreased by 6.9 per cent and in addition, the domestic debt maturity for all securities improved from 4.94 years in June 2019 to 5.46 years in June 2020, with the average maturity of bonds rising to 7.9 years.”

The government has not issued another switch bond but CBK governor Patrick Njoroge had indicated it would continue to feature due to the pressure to repay maturing debt.

He said there had been in discussions with some of the large bondholders because of specific mismatch in the maturities of short-term papers.

“You know when there are a lot of securities that are falling due, there is generally a match in new security so there are sort of an amount that you could say those investors have an option then to roll over to a particular option,” said Dr Njoroge.