Capital Markets

Government targets to raise Sh60bn from infrastructure bond tap sale


The Central Bank of Kenya building in Nairobi. PHOTO | DENNIS ONSONGO | NMG

The government is seeking to borrow Sh60 billion from the tap sale of the infrastructure bond floated earlier this month and two reopened 15-year papers.

The infrastructure bond tap sale is looking to raise Sh20 billion while the two reopened papers are targeting Sh40 billion.

The initial sale of infrastructure bond that kicked off on May 22 had targeted Sh75 billion but raised Sh73.7 billion, while the two reopened papers first hit the market in 2013 and 2018 and will now go towards the government’s financing efforts for the 2022/23 fiscal year.

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

The new round of borrowing comes after the Treasury failed to hit its domestic borrowing target for the 2021/2022 fiscal year, falling Sh66.9 billion below the aim of Sh664 billion by the end of last week.

Analysts at NCBA, however, said in their fixed income report earlier this week that the expected over performance of tax collections this fiscal year will improve the government’s fiscal position, and thus bring lower the actual amount the Treasury needed to borrow anyway.

“This suggests that the fiscal deficit could be much narrower than anticipated,” said the NCBA analysts.

The new sales also come in a period of fairly tight liquidity and market demands for higher rates, which might see a higher rate of rejected bids from the CBK which usually shuns offers that exceed the yield curve by a significant margin.

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

The CBK also raised its own base lending rate—the key rate signal in the market— to 7.5 percent from seven percent during the May monetary policy committee meeting, citing a need to keep a check on inflation.

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