The National Treasury has floated a Sh60 billion infrastructure bond, the second such issue this year. The 16-year bond is intended to finance the national Budget and will have a coupon determined by the market through the auction system.
The bond interest will not attract tax – amounting to 10 per cent – normally charged on the other issues.
It will be redeemed in phases, with the first one scheduled for October 2030 and the second one set for October 2035, which is also the full maturity date of the issue.
An investor is expected to put in a minimum of Sh100,000, but with subsequent amounts in Sh50,000.
The Central Bank of Kenya (CBK) – which conducts the auction on behalf of the Treasury – is expected to exploit the high liquidity in the market that has seen the rates on Treasury bills trend downwards.
“We are seeing heavy demand for the bond and it is likely to be oversubscribed,” said Patrick Mumu, a research analyst with Genghis Capital.
“In fact there are chances that the subscription will be good enough to enable the CBK raise the money and reject the expensive bids,” he said.
The last time an infrastructure bond was floated, which was early in the year, it came with a 12.2 per cent coupon. Mr Mumu said the bids so far received range between 11.7 and 12.3 per cent, opening a gap which is likely to be narrowed as the closing date for the issue draw near.
“The bids range between 11.7 and 12.3 per cent, so there is a big gap and it means that some bids will be rejected especially those above 12 per cent,” said Mr Mumu.