Treasury Floats Nine Year KSh60bn Infrastructure Bond

Treasury Floats Nine Year KSh60bn Infrastructure Bond

The National Treasury has floated a KSh60 billion infrastructure bond, the first issue this year. 

The 9-year bond is intended to fund infrastructure projects in the fiscal year 2019/20 budget estimates.

It has a 10.850% coupon rate. 

“The Bond will be tax free as is the case for infrastructure Bonds as provided for under the income Tax Act,” said CBK in the prospectus.

However, “The Central Bank will rediscount the bond as a last resort at 3% above the prevailing market yield or coupon rate whichever is higher, upon written confirmation to do so from the Nairobi Securities Exchange.”

The paper is on sale between 26/03/2020 to 07/04/2020. Received bids will be auctioned on Wednesday, 08/04/2020.

The bond will be listed on the Nairobi Securities Exchange with a likelihood of being re-opened at a future date.

Last week,  the Central Bank of Kenya raised Kshs 35.2 billion below its target of Ksh 50 billion from its FXD1/2018/20 and the reopened FXD1/2018/25 with effective tenors of 18.0-years and 23.0-years, respectively, and coupon rates of 13.2% and 13.4%, respectively for budgetary support.

The low performance is mainly attributable to the relatively long tenor periods of the two bonds with most investors trying to minimize duration risk. The yield on the 20-year bond came in at 13.5%, while the yield on the 25-year bond came in at 13.8%, compared to our expectations of 12.9% – 13.0% and 13.4% – 13.6% for the 20-year bond and 25-year bond, respectively.

“Last week’s bond auction offered no fresh guidance on interest rate expectations. On the supply side, baring fiscal threats presented by COVID-19, the government is at a good place having borrowed KES 292Bn, less than KES 10Bn shy of its full-year borrowing target. Further, the government has over the last three weeks paid down its overdraft facility with the central bank from KES 59.19Bn to KES 25.74Bn underscoring limited liquidity strains,” commentary from NCBA Research.