Capital Markets

Treasury seeks Sh40 billion in new bonds

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The Treasury headquarters in Nairobi. FILE PHOTO | NMG

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Summary

  • The Central Bank of Kenya (CBK) said in the bond prospectus that coupon rates for both the 15- and two-year tranches will be market determined.
  • Investor appetite for recent bonds has been lukewarm due to the longer tenors on offer which, coupled with the CBK rejecting expensive bids, has led to a shortfall in domestic borrowing.

The Treasury is in the market for Sh40 billion through two- and 15-year bonds, with the shorter tranche likely to satisfy the pent up demand for short-term paper in the market.

Issuance of the short bond is also indicative of the need to ramp up domestic borrowing in light of an upward revision of targets amid the taxman’s underperformance in revenue collection.

The Central Bank of Kenya (CBK) said in the bond prospectus that coupon rates for both the 15- and two-year tranches will be market determined.

Investor appetite for recent bonds has been lukewarm due to the longer tenors on offer which, coupled with the CBK rejecting expensive bids, has led to a shortfall in domestic borrowing.

The Treasury has also revealed that revenue performance for the first five months of the fiscal year was below target, piling pressure to raise cash through the debt market to fund continuing budgetary obligations.

“The latest National Treasury report indicates that tax revenue in the fiscal year 2018/19 at the end of November hit Sh555.66 billion with the monthly collection at Sh116.16 billion. Overall, the tax revenue performance fell short by Sh113.34 billion against its pro-rated target,” said Genghis Capital in a fixed income note. At the same time, Treasury bill auctions have been undersubscribed for the past two months.

In last week’s sale, the T-bills subscription rate was 65 per cent. The CBK accepted Sh10.9 billion of the Sh15.6 billion worth of bids received, out of the target of Sh24 billion.

The tap sale of last month’s Sh40 billion 10-year bond that closed on December 27 was also undersubscribed, netting the government Sh6.6 billion from a target of Sh13.8 billion.

The initial sale of the bond earlier last month had netted Sh26.2 billion.

The January bond is, however, being sold amid improving liquidity in the market following a relatively tight December which — coupled with the short-tenor option— should help in attracting bids. The Interbank rate has come down from a high of 11.3 per cent in mid-December to 6.7 per cent, indicating that liquidity is rising.