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Kenya will sell a six-year, amortised infrastructure bond (IFB/2020/6) to raise 25.6 billion shillings this month to fund projects in the current fiscal year budget estimates the Central bank said on Friday.
The bank said in a statement it would receive bids for the tax-free bond until May 26, and auction it a day later. The bond which is the third to be issued in May has a coupon of 10.2 percent. The bond has a minimum investment amount of Ksh100,000 with secondary trading in multiples of Ksh 50,000 commencing on 2nd June.
“What caught my eye, however, is investor eligibility in this bond,” said Renaldo D’Souza, Head of Research, Sterling Capital Limited.
The Central Bank of Kenya says, “At primary issuance, only investors with holdings T-Bill Issue No. 2236/364.” which mature in June.
According to Renaldo:
“This effectively means that the CBK is asking investors in the Treasury Bond to invest their redemption proceeds from the T-Bill in the IFB. This is an indication of the Government’s precarious financial position and is a cause for worry about the medium and long-term debt sustainability of public debt.”
“In the coming weeks, we should look out for the rationale behind a move that will have significant implications on investor behavior particularly in the primary domestic debt auction market as well as interest rates on domestic debt,” he adds.
“As per the historical trend, we expect the market to maintain a bias towards IFB1/2020/6 mainly attributable to its short tenor as well as the tax-free incentive for infrastructure bonds, translating to a higher return.
Our recommended bidding range is 11.5 percent – 11.7 percent for FXD1/2020/5 and 10.5 percent – 10.8 percent for IFB1/2020/6 given that bonds with the same tenor are currently trading at 11.4 percent and 10.5 percent, respectively, on the yield curve,” according to Cytonn Investments.
Kenya’s debt stands at Ksh 6.2 trillion equivalent to 58 percent of the country’s wealth.
The International Monetary Fund (IMF) says Kenya requires at least KSh223.7 billion (or $2.1 billion) to bridge the external financing gap opened by the pandemic shock that has exposed the local currency to volatility.
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