March’s infrastructure bond (IFB) whose auction closes on Tuesday is set to be oversubscribed as investors attach to high yields, currently being offered by government papers.
Subscriptions to the new 17-year amortized bond are further expected to be buoyed by the tax-free nature of the issue.
“We expect the issue to be oversubscribed due to the tax-free nature of IFB issues and the high yields currently being offered by government papers. However, the participation of international investors is likely to be constrained by the ongoing depreciation of the shilling,” noted analysts at AIB-AXYS Africa.
“From the performance of recent Treasury bond and bills issues, investors’ bidding trends have shown a risk versus duration mismatch. The recent 10-year paper successfully crossed the elusive 14 percent level and we also expect investors to test the Central Bank of Kenya's (CBK) resolve in this issue.”
The CBK has been seeking to raise Sh50 billion with interest rates on the security being based on the average of accepted bids.
The bond which matures in February 2040 will see half of the principal –and any amounts up to Sh1 million— repaid midway in February 2033.
The IFB was offered alongside a tap sale of two February bonds from which the CBK was separately seeking to raise an additional Sh10 billion after which it mopped up Sh12.2 billion at the end of the sale period on February 17.
Investors are expected to make aggressive bids on the IFB given risks associated with the current high levels of local and global inflation with domestic inflation having for instance rebounded to 9.2 percent in February after declining for three straight months.
The CBK is expected to accept expensive bids to ease pressure on the government's domestic borrowing program for the 2022/23 fiscal year, which has fallen behind the required run rate on investor apathy to previous security issues.
“Given the upcoming T-bond maturities and coupon payments in the month of March, totalling Sh178.6 billion coupled with budgetary needs, we foresee increased pressure on the government to accept expensive bids,” the analysts at AIB-AXYS added.