Kenya’s National Treasury has floated its first five-year KSh50 billion bond for the year.
The 5-year bond (FXD1/2020/5) is intended for budgetary support in the remainder of the fiscal year 2019/20 budget estimates.
It has a coupon of 15 percent started selling on April 29, 2020, with the auction set to close on May 11, according to the prospectus the CBK released.
The redemption date is May 5, 2025. Investors are allowed to lock in between a minimum of Sh50, 000 and a maximum of KSh20 million.
Churchill Ogutu, head of research at Genghis Capital, says they expect outsized appetite for the paper and the pent-up demand will mainly be due to its shorter duration appeal.
“The 2-year historical average on the 5-year clocked 11.21 percent. Currently, the implied yield on the tenor stands at 11.23 percent. Overall, our sentiment is that the weighted average accepted rate for FXD1/2020/5 will be 11.40 percent – 11.50 percent,” he says in their bond auction note.
NCBA Research Analysts in their weekly Fixed Income Report issued Monday, note that the National Treasury has raised its local borrowing target for the current fiscal year by Ksh 89.40 billion to help plug the financing gap.
In their view, “Revenue collections are expected to fall sharply owing to the decline in economic activity and interventions to cushion consumers and businesses.”
In March, Treasury raised Ksh 74.40 billion from the tax-exempt 9-year Infrastructure bond, significantly above the Ksh 60 billion target.
“The market is likely to bid aggressively for the paper given the aforementioned concerns. The yield could come in at about 12.0 percent. With potentially lower participation by commercial banks and coming hot on the heels of the IFB issue, and with reduced maturities in May, the paper may attract lesser bids,” according to NCBA projections.
The Monetary Policy Committee (MPC) of the central bank of Kenya (CBK) met and reduced the policy rate by 25bps to 7.00 percent.
The regulator’s additional emergency measures announced on March 18, loans amounting to Ksh 81.7 billion should result in a fiscal impulse of around 2 percent of gross domestic product in fiscal 2019-20.
“The risk of fiscal policy subsidence has increased substantially with COVID-19. High spending pressure coupled
with wider revenue shortfalls should see the government increase its debt substantially,” notes NCBA.
Updated Wednesday, April 6, 2020