Market News

Rotich kicks off yearly debt uptake with Sh40bn bond


Treasury Secretary Henry Rotich with the Budget Speech in the past. FILE PHOTO | NMG

The Treasury has kicked off its domestic borrowing plan for this year by offering investors Sh40 billion bond with a 15-year tenor.

The Central Bank of Kenya (CBK) announced Tuesday the sale of the bond will be open until July 23.

Returns on the bond, whose proceeds will go into supporting government’s cash needs, will be market-determined.

Mercyline Gatebi-Kyalo, a senior research analyst at Kingdom Securities, said aggressive investors were likely to bid between 12.55 percent and 12.65 percent, while the conservative ones could ask for between 12.45 percent and 12.55 interest.

“This could, however, change since the sale period is slightly longer hence could see market patterns vary,” Ms Gatebi-Kyalo said.

“High liquidity conditions and the dearth in the supply of short-term papers may see the paper receiving some traction especially from selected banks, fund managers and insurance companies. Thus, we expect above-average subscription levels.”

Investors asked for an average yield of 11.666 percent on the 15-year bond, which matures in 2027, last month when the CBK re-opened it, and 12.591 percent for the one due for payment in 2033.

The CBK rejected nearly Sh46.68 billion expensive bids when it re-opened the two bonds for sale, attracting Sh85.62 billion bids from investors against Sh40 billion offered.

“Liquidity in the money markets (in June) remained significantly high in Kenya… evidenced by the oversubscription of government securities,” Sanlam Investments said in a monthly note published on Tuesday.

Investors in the secondary market were bidding around 12.40 percent for the 15-year listed paper, marginally lower than Friday’s close of 12.42 percent.

Treasury secretary Henry Rotich plans to raise a net of Sh283.5 billion from domestic investors in form of bills and bonds to help plug a Sh607.8 billion hole in this year’s Sh3.1 trillion budget.

“The interest rates for government securities have been declining indicating that the implementation of government domestic borrowing programme supported market stability,” Mr Rotich says in the 2019 Budget Policy Statement.

High liquidity has played a part in weakening the shilling on the back of high demand for the US dollar by importers shipping in oil and merchandise.