Project bond tap sale expected soon

The Treasury is expected to return to the fixed-income market for more cash through the infrastructure bond that was floated last week.

The government will be seeking via the tap sale new bids for the bond with a view to accepting more money for expenditure under the same terms and conditions as last week’s offer. The rejected bids are to serve as a good starting point.

During last week’s auction of the IFB1/2018/20, the Central Bank of Kenya (CBK) acting as the agent of the Treasury, took only Sh27.6 billion out of Sh40.4 billion put in by investors for the Sh50 billion offered.

“We anticipate a tap sale on the infrastructure bond, IFB1/2018/20yr, to mop-up the rejected cash from the initial auction and also endear to investors who were squeezed out by constrained initial sale period,” said investment bank Genghis Capital in a note to clients.

A tap sale is also expected to spur activity in the bond market, which experienced some jitters last week with reduced trading volumes.

“We expect to witness more activity this week as investors come to the market ahead of a possible tap sale on the IFB 1/2018/20,” said Genghis Capital.

The funds received from the IFB sale will mainly go to the redemption of Sh34.64 billion that was due for payment last Monday, said the analysts.

However, that will still leave a gap in the total amount targeted to be raised through a tap sale to achieve the main purpose of the bond – that is, infrastructure development funds.

“The proceeds of the bond will be geared towards redemption of the FXD3/2013/5year, with an outstanding amount of Sh34.64 billion, which will mature on Monday.

However, the primary purpose of the infrastructure bond remains unfulfilled,” said Genghis Capital.

The release of the cash into market (redemption) is expected to spur trading on the short-dated instruments.

“FXD3/2013/5yr with an outstanding Sh34.64 billion maturing is likely to uplift trading at the short-end of the yield curve,” said Genghis Capital.