The Kenyan government is back on the local debt market by reopening a 20- year bond issued in 2018 alongside a new one of 15 – years, totalling Sh50 billion for budgetary support.
In a public notice , Central Bank of Kenya (CBK) said the price for the new issue will be market determined while investors will reap 13.4 per cent yield on the reopened bond.
The bonds will be on sale today. Investors are expected to pay by February 24, with maximum investment set at Sh20 million per Central Depository Settlement account.
However, state entities, public universities and semi autonomous government agencies can buy more.
The bond will be listed on the Nairobi Securities Exchange (NSE) and only investors with active CDS Accounts are eligible. Secondary trading in multiples of Sh50,000 will commence on Tuesday, February 25, 2019.
Licensed placing agents will be paid commission at the rate of 0.15 per cent of actual sales (at cost) net of five per cent withholding tax.
The Central Bank will re-discount the bonds as a last resort at three per cent above the prevailing market yield or coupon rate whichever is higher, upon written confirmation to do so from the Nairobi Securities Exchange (NSE).
Investors for the new bond will receive the first interest payment on August 24 while those putting their money in the reopened debt will get the first interest on June 22.
Discount and Interest on this bond is subject to withholding tax at a rate of 10 per cent with a redemption date for the 15- year bond set on February 5, 2035 while the reopened one will be redeemed May 25, 2043.
Last month, the government reopened a 10 and five year bonds worth 50 billion placed last year after being under subscribed on low yields of 11.3 and 12.4 per cent respectively.
The government is under pressure to finance the 2019/20 budget deficit cheaply after the National Treasury's appetite for expensive external debt was rebuked.
Early this month, Treasury CS Ukur Yatani hinted of plans to introduce another supplementary budget to further slash the deficit, citing low revenue collection.
While the state is shunning external debt, it is expected to pay higher interests on local debt, especially after the repeal of interest cap law in November that is expected to see banks refocus lending to primary borrowers.
Turnover of bonds traded in the domestic secondary market declined by 17.9 percent during the week ending February 13, this according to CBK's weekly bulletin.
