The Central Bank of Kenya (CBK) has successfully hit its partial buyback target of Sh50 billion on three bonds that are due to mature in April and May, easing the headache of heavy maturities in the two months amid an upward revision in the current year’s domestic borrowing target.
The buyback, which closed on Monday, targeted a three-year bond, which was first issued on April 11, 2022, a five-year bond sold on May 11, 2020 and a nine-year infrastructure bond whose debut sale was on May 23, 2016.
These papers have a total outstanding value of Sh185.05 billion, meaning that the CBK and the National Treasury were buying back 27 percent of their face value.
Bondholders offered to sell to the CBK Sh56.1 billion worth of bonds, against the target of Sh50 billion, with the regulator taking up Sh50.09 billion in the early redemption deal.
The five-year bond attracted the biggest volume of offers at Sh40.07 billion, out of which Sh35.07 billion was accepted, followed by the three-year paper with bids of Sh10.27 billion and acceptances of Sh9.27 billion. The infrastructure bond saw buyback offers of Sh5.74 billion, all of which was accepted by the CBK.
On the pricing, all of the bonds were bought back at near face value of Sh100 per bond unit, plus accrued interest since the last date of interest payments.
The three-year bond therefore returned a price of Sh104.68 per Sh100, inclusive of accrued interest of Sh4.36, while the prices on the five-year bond and the infrastructure bond stood at Sh103.94 and Sh104.14 respectively, both inclusive of accrued interest of Sh3.43.
This was the government’s first ever domestic bond buyback, which was preferred as an alternative to an earlier advertised Sh204 billion switch bond programme that targeted the same three and five year bonds, and an early maturing portion (amortisation) of a nine-year infrastructure bond which was issued in 2020.
Ahead of the buyback, the CBK sold a pair of reopened infrastructure bonds targeting Sh70 billion, but which ended up raising Sh130 billion after being oversubscribed with bids of Sh193.9 billion.
The higher-than-expected haul from the February infrastructure bonds helped the CBK raise enough funds to finance the buyback without impeding its domestic borrowing plan for the current fiscal year.
This domestic borrowing target is set for an upward revision in the second supplementary budget to Sh593.7 billion from Sh413.1 billion that was set in the first supplementary budget last year.
The buyback is part of the Treasury’s liability management efforts targeting the heavy maturities towards the end of the current fiscal year, which with the higher borrowing target would put the CBK under pressure to raise interest rates on bonds in order to attract more funds from the market.
In addition to the Sh185.05 billion maturities on the three bonds that were targeted in the buyback (now reduced to Sh135 billion), the CBK will also need to raise Sh40 billion to cover the amortisation on the nine-year infrastructure bond in April.
