Markets & Finance

Treasury sets out to borrow Sh30bn through bond sales

NT

National Treasury offices in Nairobi. PHOTO | SALATON NJAU

The National Treasury is this month seeking to borrow Sh30 billion for budgetary support through reopened five and 20- year bonds, as it kicks off the borrowing programme to fill the Sh689 billion financing hole in the current national budget.

The five-year bond will carry a market-determined coupon rate, while the rate for the 20-year offer has been set at 13.75 per cent. The bonds will be on sale between July 6 and 19.

The Treasury is likely to ramp up its domestic borrowing in the first quarter of the fiscal year when it needs to roll over high debt maturities, especially in August.

“Given that August maturities are officially at Sh100.1 billion (and rising), we anticipate the Treasury will be forced to front-load in the financial year 2016/17,” said Kestrel Capital in a fixed-income analysis note.

Last month, the Treasury raised another Sh30 billion through the sale of two- and 15-year bonds, which attracted bids worth Sh50 billion in a liquid money market.

READ: Treasury bill rates continue falling after heavy bidding by investors

The 15-year offer yielded a rate of 14.33 per cent, with the lower rate at 13.75 per cent being offered on the 20-year bond in line with the declining interest rates on long- and short-term securities since the beginning of the year.

The new bonds are however being issued at a time the liquidity in the market has been restrained by end of quarter tax remittances by banks, meaning that the subscription might not hit the levels recorded for the June bond issue.

The Treasury has a domestic borrowing target of Sh229.6 billion for the current fiscal year and an external borrowing target of Sh459.4 billion.

In the last fiscal year, domestic borrowing overshot target by Sh40 billion coming in at Sh350 billion against a revised target of Sh310 billion.

“Brexit has made external financing conditions even more difficult. Consequently, it is highly likely that the government may find itself in the same position they were in late last year, where they funded more from domestic than they did from external markets,” said Cytonn Investments analysts in their half-year 2016 fixed income analysis.