The government plans to issue the 31 billion shillings ($386 million) infrastructure bond with a coupon of 6 percent redeemable over six, seven and nine years.
“It (the yield) is in line with the market. The central bank has been in the driving seat of lowering rates so they couldn’t issue a bond with a higher yield than that of similar bonds in the secondary market,” said Duncan Kimani, head of fixed income at Bank of Africa.
Infrastructure bonds have been popular in the east African nation’s debt market, ever since their introduction last year, mainly because earnings on the bonds are tax exempt to encourage investors.
This will be Kenya’s fourth infrastructure bond. The last issue in February was worth 14.5 billion shillings and the inaugural one in early 2009 was worth 18.5 billion shillings.
Jackson Kitili, central bank’s director of monetary operations and debt management, said the sale period of the bond would be known by the end of the week.
“We want 31.6 billion shillings and we are going to have it amortized at sixth, seventh and ninth year. Most of it will be at the sixth year,” Kitili said. “There is a proportion that will be amortized. It’s 43 percent for the first one, 26 for the second one and final one is the balance, which is nine years.”
The Central Bank’s Monetary Policy Committee unexpectedly cut its benchmark Central Bank Rate last week by 75 basis points to 6.0 percent, in a move interpreted by analysts to mean policy-makers want to see lower lending rates.
Yields have been falling this year on the back of unprecedented high demand across the curve, with abundant liquidity chasing limited investment options.
They have been stable in the runup to a vote on a new constitution slated for Wednesday.
Still, some traders felt the amount to be raised by the issue could overwhelm the market, used to each past issue being of a size no larger than 18.5 billion shillings.
“Given that we have witnessed reduced activity in the secondary bond market trading in the recent past, I have a feeling that the issue is bigger than what ... the market is prepared for right now,” Peter Njuguna, head of trading at Commercial Bank of Africa, told Reuters.
“I am not saying that it will not be fully subscribed. I think, given that the liquidity is still there in the market, we will wait and see how the subscription will be.”
Kimani said the market had grown by leaps and bounds after the debut infrastructure bond and that it could handle the upcoming issue, which amounts to all of the government’s planned borrowing for the infrastructure this fiscal year.
“Even if the issue is not fully subscribed, it can be re-opened later ... there is no downside risk,” said Kimani, adding the amortization of the bond was appealing to investors.
“It’s a nine year bond with an average maturity of seven year. You are going to get your money sooner so you can re-invest it.”
