Capital Markets

Treasury races ahead of domestic borrowing target


A pedestrian walk past the National Treasury building in Nairobi on June 12, 2014. FILE PHOTO | NMG

The Treasury has raced ahead of its domestic borrowing target for the fiscal year following the huge uptake of the September infrastructure bond issuance, taking advantage of a highly liquid market and dearth of alternative investment options.

Having netted Sh106.75 billion in the September infrastructure bond whose sale closed last week, the treasury has now raised a net of Sh278 billion since the fiscal year began in July, representing 42.2 percent of the year’s net target of Sh658.8 billion.

The prorated target amount for the first quarter of the fiscal year (three months to September) is Sh164.7 billion.

Bonds auctions in the last three months have all returned oversubscriptions in bids, allowing the government to front load its domestic debt programme for the year without having to pay over the odds in interest for the funds.

The September infrastructure bond that was targeting Sh75 billion raised a record Sh151.3 billion worth of bids, with investors attracted by the interest free nature of the paper that will pay interest at 12.73 percent.

August’s three-tranche bond that targeted Sh60 billion raised bids worth Sh104.64 billion, out of which the Central Bank of Kenya (CBK) took up Sh80.29 billion.

In July, the government also targeted Sh60 billion in a dual tranche bond which saw it take up Sh79.9 billion from the Sh116.92 billion that was offered by investors. The State also raised an additional Sh37.42 billion in July through a tap sale of the previous month’s bond issuance.

The effort to close the funding gap has also been helped by relatively low bond maturities in the first three months of the fiscal year, with only Sh24.4 billion coming due so far (in July).

This has allowed the CBK to avoid using Treasury bills to fill the budget deficit. In recent auctions, the government’s fiscal agent has been taking up just enough to roll over maturities in the short term securities, helping efforts to cut the refinancing risk for domestic debt going forward.