Capital Markets

Treasury seeks Sh30bn in first big bond offer

The National Treasury building in Nairobi. FILE PHOTO | NMG
The National Treasury building in Nairobi. FILE PHOTO | NMG 

The Treasury is seeking to raise Sh30 billion through sale of a 10-year bond in its first major offer this financial year, which started on July 1.

The Central Bank of Kenya (CBK), the government’s fiscal agent, announced bids for the bond beginning Friday until July 25.

Buyers are expected to fetch in the upwards of 12.5 per cent in returns, going by the prevailing 12 to 12.5 per cent yield for a 10-year bond in the market.

Analysts said they expect the bond to be snapped up, citing a fairly liquid market.

“Where are 10-year yields right now? I think it will fly off the shelves and it’s a screaming buy,” Aly-Khan Satchu, a Nairobi-based financial analyst and chief executive of Rich Management, said in an emailed response.

“Inflation, excluding food, is set to turn negative, the shilling remains alpha and double-digit returns look very juicy.”

Interest returns

The interest returns on the bond will be market-determined, payable every six months.

“Possible as a last resort, the bond will be discounted at three per cent above the higher of prevailing market yield or coupon rate,” the CBK said.

The discount and interest will be subject to a 10 per cent withholding tax.

“The market is relatively liquid and I think there will be a lot of interest from banks and fund managers. Having just started the financial year, I would also expect the government to be aggressive in picking (the bids),” Elizabeth Nkukuu, chief investment officer at Cytonn Investments, said in a phone interview.  “We expect its success to be much higher.”

The government plans to borrow an estimated Sh524.6 billion to bridge the deficit in this year’s Sh2.29 trillion budget.

About Sh268.6 billion is set to be mobilised domestically, with the remainder Sh256 billion to be sourced from market.

Treasury CS Henry Rotich said in his budget policy statement that external borrowing will largely be concessional.

“Non-concessional external borrowing will be limited to projects with viable expected returns and the ceilings in the Medium-Term Debt Strategy,” said Mr Rotich.

The bond issue comes in the wake of increased appetite for short-term government securities during the weekly sale on Thursday.