Investors who opted to roll over their securities into a new infrastructure bond will see their net interest income on the paper increase by up to 72 per cent, benefitting from rising rates in government debt.
A two-year bond and three T-bills worth Sh87.8 billion were due to mature early next month but the Central Bank of Kenya offered their holders an option to take up a six-year infrastructure bond instead of cash.
Results of the transactions, known as a switch, show that investors converted a total of Sh49.1 billion into the new paper that came with an interest rate of 13.215 per cent.
This represents an increase in net interest income ranging from 63.89 per cent to 72 per cent.
The coupon on the infrastructure bond is tax-free while a tax of 15 per cent applies on the interest earned on the converted short-term securities.
The gross interest rate on the 91-day, 182-day and 364-day Treasury bills stand at 9.036, 9.253 and 9.444 per cent respectively. The two-year bond has a coupon of 9.486 per cent.
The switch managed a 55.9 per cent success rate, with the CBK rejecting some bids.
The government’s fiscal agent received bids totalling Sh52.9 billion. This is the second bond switch that is aimed at avoiding a cash crunch early in the New Year.
The direct conversion of maturing Treasury bills and bonds into longer-term security, which is known as a switch bond, has been done only once before by the Treasury, in June 2020.
The move by the new Treasury administration to roll over is seen by fiscal analysts as an effort to address the refinancing risk carried by these papers early in the new year, at a time when the government is playing catch-up with the domestic borrowing target for the fiscal year.
In June 2020, the switch bond was also in form of a six-year infrastructure paper, which netted Sh20.2 billion out of a target of Sh25.6 billion —the worth of a maturing one-year Treasury bill that the state was looking to roll over.
