Central Bank of Kenya (CBK) raised Ksh 19.3 billion from the sale of a six-year, amortised infrastructure bond on behalf of the treasury on Wednesday’s auction.
This represented an 82.75 percent performance rate. Treasury had targeted to raise Ksh 25.60 billion from investors holding T-bill Issue No. 2236/364.
The CBK received KSh 21.18 billion bids and accepted 19.29 billion with a coupon of 10.200 percent on the bond.
Funds raised will fund projects in the current fiscal year budget.
“Although the bond proceeds are to fund infrastructural projects, the details remain threadbare. As at the end of March 2020, absorption rate of Exchequer developmental issues to the broader Energy, Infrastructure and ICT Sector was 60.5 per cent and as such, there is scope for utilization of the bond proceeds,” says Churchill Ogutu, Analyst Genghis Capital.
NCBA analysts are of the view that ample cash conditions in the interbank market have blunted the expected uptick in yields. As a result, the demand for
government securities has outpaced the government’s appetite for debt, at least for now, as alternate investment vehicles remain scarce.
“The government may find it a worthwhile venture to take advantage of the current liquidity predicate by issuing attractive tenured bonds. So far, this has been the case given the slew of back-to-back medium-term issues since mid-April,” they note.
On the other end, Cytonn Investments due to the uncertain environment, investors should be biased towards short-term fixed income securities to reduce duration risk.
The government is 17.7 percent behind of its current domestic borrowing target of 404.4billion, having borrowed Kshs 294.4 billion against a prorated target of Kshs 357.7 billion. The government had also borrowed 98.4 billion (42.3%) of the 232.8 billion foreign borrowing target, as at 31st March 2020.
“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 tn, creating uncertainty in the interest rate environment as additional borrowing from the domestic market goes to plug the deficit,” says Cytonn.
Ogutu further describes the revenue outturn in the fiscal year as “anything but spectacular” (KES 1.332Tn –vs- KES 1.537Tn target).
“Thus, pressure has been for net domestic borrowing to remain ahead of the curve. Therefore, we expect a new June bond issue to cater for the maturing FXD1/2015/5 (KES 31.0Bn) at the penultimate week of the fiscal year,” he reckons.