The government seeks to raise Sh50 billion for infrastructure development in its latest offering in the wake of renewed appetite for the state securities.
The Central Bank of Kenya released a prospectus inviting bids for the newly issued infrastructure bond IFB1/2023/6.5 with a tenor of six and half years.
This comes after the success of its previous bond issued in June that registered an oversubscription rate of 367.5 percent.
Through the new issue, the government seeks to raise Sh50 billion to fund infrastructure projects in the 2023/24 financial year budget estimates.
The success of this infrastructure bond issuance will be closely monitored, not only for the government’s ability to secure funding but also for the broader economic implications.
A well-subscribed issuance would be a positive signal, demonstrating investor confidence in the Kenyan economy despite the challenges posed by the high interest rate environment.
This comes at a time when Treasury Bill interest rates soared above 15 per cent, leaving the government in a tight place, even as undersubscription of long-term bonds becomes more pronounced.
“Central Bank of Kenya, acting in its capacity as fiscal agent for the Republic of Kenya, invites bids for the above bond,” CBK said in a statement.
The bidding process opened on 20th October 2023 and will close on 8th November 2023, with the coupon rate to be determined by the market.
The bonds value date will be 13th November 2023, with a maturity date of 6th May 2030 and will be tax free as is the case for infrastructure bonds as provided for under the Income Tax Act.
The banking regulator is hopeful that the bond will be oversubscribed given its tax-free nature.
However, Kenyas debt sustainability still remains a challenge with the country having hit the debt ceiling and way above the debt to GDP anchor of 55 percent.
KRA failing to raise adequate revenue and the steep borrowing costs and economic headwinds have made infrastructure bonds an attractive alternative for a cash-strapped Treasury.
Government’s decision to turn to infrastructure bonds is partly motivated by its inability to access international financial markets due to exorbitant interest rates
The last infrastructure bond to be issued was the 7-year IFB1/2023/07 in June 2023 which sought to raise Sh60 billion.
With a nominal issuance target of Sh60 billion, the subscription reached a high of Sh220 billion, underscoring the strong investor appetite for these bonds.
