The Central Bank of Kenya (CBK) has set its sights on raising Sh60 billion from the sale of a new seven-year amortised infrastructure bond.
The apex bank has floated the tax-free paper for sale until June 13 as it sets itself for the wrap of the domestic borrowing programme for the current 2022/23 financial year next month.
The CBK has raised the attractiveness of the paper beyond the tax-free status to include a structured redemption cycle where 20 percent of the outstanding principal will have been retired on June 15, 2026 and 30 percent as at December 13, 2027.
Beyond the tax incentives and redemption structuring, the CBK is expected to bet on renewed investor interest on bonds to meet the paper’s full subscription.
The renewed interest in government bonds by investors who previously gravitated towards shorter dated Treasury Bills has been mirrored by the recent full subscription of a three-year bond which realised Sh58.1 billion cumulatively after two successive tap sales, which followed the paper’s primary issuance.
The timing of the paper’s tenure at three-years was largely credited with attracting investors, who have been sensitive over the term of securities, with the paper becoming the first fully subscribed bond this year outside March’s infrastructure bond.
The bond was oversubscribed across all three issues beating the set target of mopping Sh50 billion. Interest in the paper saw the CBK lean on the three-year bond to primarily mobilise domestic credit throughout May.
The first infrastructure bond this year was fully subscribed in March at primary auction and realised bids of Sh59.8 billion against Sh50 billion on offer, representing a 119.54 percent performance rate.
The performance of the bond’s tap sale, however, slumped after realising bids of just Sh12.7 billion against a target of Sh20 billion.
Investor interests in the new infrastructure bond are expected to be a balance between the paper’s longer seven-year tenure and the weighted average rate of accepted bids.
The investors participating in the auction are expected to demand higher risk-adjusted returns as interest rates on government paper continue to climb steadily through the first half of the year.
Interest will be split by the weekly Treasury bill auctions where yields on the 91-day, 182-day and 364-day papers are set to stand above the 11 percent mark at the start of June.