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Treasury nets Sh180 billion from bond tap sale amid high market liquidity
With the government under pressure to meet its high domestic borrowing target of Sh635.5 billion for the current fiscal year and fund elevated debt service costs in August, a tap sale was seen as a necessity to bring in new borrowing for the month.
The government has netted Sh179. 8 billion from the tap sale of the August infrastructure bond after it was oversubscribed four times over in a highly liquid money market.
The sale, which targeted Sh50 billion, attracted bids of Sh207.45 billion as investors brought back into the market the billions rejected by the Central Bank of Kenya (CBK) in the bond’s primary sale last week.
The tap sale was open for just 24 hours, having opened on Tuesday. It was meant to end today but the CBK retained the option of closing it early once its target was achieved.
CBK has now netted a total of Sh274.8 billion from the August bond, which comprised a pair of re-opened 15-year and 19-year infrastructure bonds first sold in January 2018 and February 2022.
The primary sale, which targeted Sh90 billion, ran between July 21 and August 13, raising bids of Sh323.43 billion, out of which CBK took up just Sh95 billion as it rejected offers it considered expensive.
The 15-year paper carries a coupon rate (actual payable interest rate) of 12.5 percent, and the 19-year paper has a rate of 12.96 percent.
The effective yield on the 15-year paper, however, settled at 12.99 percent, and the 19-year at 13.99 percent, resulting in discounted prices of Sh98.19 and Sh94.59 per bond unit of Sh100, respectively. These prices were also applicable to the tap sale.
With the government under pressure to meet its high domestic borrowing target of Sh635.5 billion for the current fiscal year and fund elevated debt service costs in August, a tap sale was seen as a necessity to bring in new borrowing for the month.
The entire Sh95 billion raised in last week’s primary auction went towards settling a Sh94.68 billion maturity on a two-year bond that was floated in August 2023.
Treasury is also paying Sh87.2 billion in interest on its portfolio of bonds and Sh83.4 billion in Treasury bill maturities this month.
Externally, its debt service charge for the month includes principal and interest payments of Sh41.6 billion to the Eastern & Southern African Trade & Development Bank (TDB) and Sh19.47 billion in semi-annual interest payments on Eurobonds worth a cumulative $3.5 billion (Sh452.3 billion) that were issued in February 2018 and February 2024.
