The National Treasury has floated a KSh60 billion infrastructure bond, with financial analysts, expecting aggressive bidding.

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.”

It will be redeemed in phases, with the first one scheduled for April 2025. The second phase will fully mature by April 2029.

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.

“This month’s primary bond issue is coming up on the backdrop of maturing FXD1/2010/20 (re-opened) which has an outstanding amount of Ksh 19.4  billion. That being the case, there is a likelihood that the proceeds of the bond will partly retire the maturing bond. We note that although the bond proceeds are to fund infrastructure projects in the current FY2019/20, details of the beneficiary sector(s) are threadbare in the prospectus,” comments Genghis Capital.

According to Churchill Ogutu, Analyst at Genghis, ‘Energy, Infrastructure and ICT’ sectors might be the major beneficiaries of the infrastructure bond proceeds. “As at the end of February, disbursements by Treasury to this sector was 58.7% of the total development budget allocation.”

“While the Tax amendment Bill 2020 suggests that the exemption on the paper will now be lifted, the prospectus had indicated that the issue would still carry the same tax-exempt status as previous IFBs. However, considering that the Amendment Bill is yet to be enacted, the paper may still enjoy tax-exempt status to sell at 10.80-11.20%. Otherwise, the paper may sell at a further 100-150bps discount on the above level if the tax-exempt status of the paper was revoked,” NCBA Research Team says.

Updated with last paragraph.

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