Capital Markets

Treasury eyes Sh40bn from well-paying new roads bond

road construction

State seeks to raise more funds for roads through infrastructure bond. FILE PHOTO | NMG

The Treasury is seeking Sh40 billion through one of the largest infrastructure bonds ever offered since the instrument was first floated by the Grand Coalition government in 2009.

The offer comes with a 12.5 per cent annual return payable every six months and without any income tax charged unlike the other bonds.

It means that the minimum investment of Sh100,000 earns an investor Sh12,500 a year, payable in two equal instalments six months apart.

The last infrastructure bond was floated last November with Sh30 billion sought but the offer was oversubscribed and the Treasury took up Sh41 billion that is currently listed on the Nairobi Securities Exchange (NSE).

Investors made offers amounting to a total of Sh45 billion for the bond.

Well received

“We expect the latest infrastructure bond offer to be well received by the market. The other similar bond at the end of last year was oversubscribed; investors are no longer holding back as elections have passed and there is some good spending by the government so we expect the bond will be successful,” said Alexander Muiruri, fixed-income investment banker at Kestrel Capital.

The bond could therefore be a beneficiary of liquidity in the money markets.

Before last October when the repeat presidential election was conducted and a petition determined, markets were jittery due to the uncertainty over the prolonged polls.

Mr Muiruri said the first two weeks of this year indicated the government was spending money and there is an upcoming maturity of a two-year bond, which should keep the market liquid.

The maturity of the short-term bond will release into the market Sh20.15 billion on January 22, when the last coupon payment is due.

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8pc maturity

The bond was issued in early 2016. It currently has a yield to maturity of 8.0 per cent although it has a coupon of 15.76 per cent.

It started off at a yield of about 11.5 per cent but this has since fallen meaning that its price has risen over the past two years.

Although the infrastructure bond that has just been issued is rated a 15-year issue, it has a slightly lower actual duration of 13 years because there will be a prepayment of 40 per cent of the issued amount in January 2028, which is 10 years from now.