The state yesterday issued a notice to borrow Sh50 billion domestically to fund infrastructure projects in 2018-19 budget amid slow uptake of long term debt by investors.
The 20-year infrastructure bond, which will also be traded at the Nairobi Securities Exchange, is attracting 11.9 per cent interest to be paid every six months on outstanding principal.
According to Central Bank, the amortised fixed coupon infrastructure bond will earn investors 11.9 per cent interest per annum but it is willing to offer three per cent above prevailing market yield incase the bond is re-opened in future.
The bond opens for investors today and tomorrow and requires applicants to buy a minimum investment of Sh100,000 and a maximum of Sh20 million per investor, with secondary trading in multiples of Sh50,000 to commence November 20.
“Investors should obtain details of amounts payable for successful bids from Central Bank on November 15. Final redemption of all outstanding principal will be on October 25, 2038,” the CBK notice read.
In January, government issued a 15-year project bond worth Sh40 billion, and is floating a new domestic debt instrument on the backdrop of a recent report that illustrates low activities in Kenya’s equity and debt market.
According to Capital Market Authority’s Q3 Statistical Bulletin released on Friday, the government raised Sh56.4 billion against Sh120 billion advertised during the period under review. This was, however, an improvement compared to the corresponding quarter last year.
CMA attributed low performance to increased outflows, following policy and tax reforms.
According to CBK’s Weekly Statistical Bulletin, domestic secondary bond market recorded a 29 per cent decline in bond turnover during the week ending November 8, 2018.
Analysts think the interest given is low for a long term facility. Johnson Ndege, senior manager at Cytonn Investment thinks CBK is testing waters with the 11.9 per cent offer considering that the 15 year bond issued in January attracted an interest of 12.5 per cent.
“I think CBK has bench-marked its offer with other investment options in the market. Government securities are sure bets. However, 11.9 per cent is a bit low. I think it will be reviewed later to meet supply and demand metrics,’’ Ndege said.