Kenya National Treasury’s 9-year Treasury Bond worth Ksh 60 billion was oversubscribed by 114.02 percent with the Central Bank of Kenya accepting KSh 39 billion.
The high subscription according to Cytonn Investments, was mainly attributable to its short tenor as well as the tax-free incentive for infrastructure bonds, translating to a higher return.
“The yield on the tax-free bond came in at 12.3%, with the government accepting Kshs 39.0 billion out of the Kshs 68.4 billion worth of bids received, translating to an acceptance rate of 57.0%.”
The funds will help the state to fund infrastructure projects in the fiscal year 2019/20 budget estimates.
During the Wednesday auction, bids received were worth Ksh 68,413.78 billion
It will be redeemed in phases, with the first one scheduled for April 2025. The second phase will fully mature by April 2029.
The bond will be listed on the Nairobi Securities Exchange with a likelihood of being re-opened at a future date.
“However, as per the proposals from the Tax Laws (Amendment) Bill, 2020, going forward, securities used to raise funds for infrastructure and other social services with tenors of at least 3-years will now be subject to 10.0% withholding tax, just like the other normal bonds.
The introduction of the tax is set to remove the single most distinctive and attractive feature of these bonds, which will also mean that the State may be forced to pay higher interest on the papers to compensate for the tax levy.
The government is 10.2% behind of its domestic borrowing target, having borrowed Kshs 217.9 billion against a pro-rated target of Kshs 242.6 billion.
The uncertainty brought about by the novel Coronavirus will make it harder for the government to access foreign debt due to uncertainty affecting the global markets, which might see investors attaching a high-risk premium on the country.
A budget deficit is likely to result from the depressed revenue collection with the revenue target for FY’2019/2020 at Kshs 2.1 trillion, creating uncertainty in the interest rate environment as additional borrowing from the domestic market goes to plug the deficit,” commentary from Cytonn Investments.