Capital Markets

State eyes market with Sh75 billion infrastructure bond

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National Treasury building. FILE PHOTO | NMG

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Summary

  • Central Bank of Kenya (CBK), the selling agent, said in the bond prospectus that the offer’s coupon rate will be market determined.
  • The 21-year bond is on sale until September 7 and will be amortised—meaning it will have an early redemption of 50 percent of principal on September 1, 2031.

The Treasury has floated a Sh75 billion infrastructure bond, looking to take advantage of a liquid money market to close the domestic borrowing target for the current fiscal year.

Central Bank of Kenya (CBK), the selling agent, said in the bond prospectus that the offer’s coupon rate will be market determined, with the government eyeing a large take going by the performance of the previous tow infrastructure papers floated in January and April this year.

The 21-year bond is on sale until September 7 and will be amortised—meaning it will have an early redemption of 50 percent of principal on September 1, 2031 with the remainder being paid up on August 18, 2042.

Analysts said that the current liquid market has informed the decision to issue an infrastructure bond, which due to tax free status tends to attract heavy bidding.

The market has been flush with shillings in recent weeks, supported by government payments to its agencies, contractors and departments, as well as maturing domestic debt redemptions.

“The liquid environment strengthens our view as the overarching driver behind the September primary bond choice,” said Nairobi based investment bank Genghis Capital in a weekly market note.

The last two infrastructure bonds have seen huge oversubscription. The January paper which had sought Sh50 billion recorded bids worth Sh125.5 billion, with the CBK taking up Sh81 billion.

In the April bond, that had a target of Sh60 billion, investors offered the government Sh88.6 billion, out of which the CBK took up Sh81.9 billion.

The new offering is therefore seen as both an effort to close the borrowing target and also mop up the excess liquidity.

The government is looking to borrow a net of Sh658.5 billion from the domestic market this year, which will be combined with external borrowing worth Sh271.2 billion to fill in the budget deficit that is equivalent to 5.3 percent of GDP.

It has already taken up a net of Sh92.4 billion in form of bonds last month.