3rd December 2022

Kenya’s 25-year infrastructure bond is unattractive to long term buyers

Kenya’s 2 and 15-year Treasury Bonds Raise Ksh 32bn

The National Treasury through the central bank will sell a 25-year amortized infrastructure bond this month to raise up to Ksh 50 billion over a 2-week sale period beginning 1st March.

This is the longest issue since June 2018.

The bond will be auctioned on March 20, will come with a coupon of 12.200%. It will be tax-free in line with the government’s policy of encouraging investors to bank infrastructure bonds.

The funds raised are intended for partial funding of infrastructure projects in the transport, water and energy sectors.

However, analysts are not optimistic about the offer.  “We do not expect significant interest given that majority of the potential buyers are already tax exempt and the coupon does not offer compensation for that tenor. Also, the amortized nature of the bond is unattractive to long term buyers,” according to Genghis Capital in its Weekly Strategy 4 March 2019.

On the other hand, Commercial Bank of Africa Limited analysts Faith Atiti and Stephanie Kimani say, “Mobilizing Ksh 50Bn for the 25-year infrastructure bond despite the liquidity outlook may be an onerous task.”

But, “Even then the paper should attract some considerable appetite at around the 12.50% levels given the low supply of alternatives although market could stretch the bids towards 13.00%.”

“The long tenor of the bond is in line with the CBK’s objective of lengthening the maturity profile of public debt in order to reduce refinancing risk. Despite IFB’s historically recording higher subscription rates than other Treasury Bonds due to the tax-free incentive translating to higher investment yields, we do not expect the issue to generate significant interest due to duration risk associated with long-term papers. We expect the weighted average of accepted bids to come in at 12.5% – 12.7%,” Cytonn Investments.

“We do not anticipate investors to snap entirely the offered amount in this month’s primary bond, IFB1/2019/25. We
expect weighed accepted rate at the auction to average 12.40% -12.60%,” Genghis Capital.

(Updates with details from Genghis Capital and Cytonn Investments last paragraphs as updated on March 18, 2019)