Sh68bn raised from roads bond

The government has raised Sh68.4 billion against a target of Sh60 billion from this month’s 16-year infrastructure bond (IFB) after the security was 144.9 percent subscribed.

The oversubscription was in line with analysts’ expectation, given the heavy demand for long-tenor government papers witnessed in the market.

Investors had offered Central Bank of Kenya (CBK) Sh86.94 billion but Sh18.48 billion was rejected. The weighted average of accepted bids was 12.394 per cent against market average demand of 12.507 per cent.

Head of fixed income desk at Genghis Capital Kenneth Minjire said the tax-exemption element as well as the long tenor drove in both retail and high net worth individuals and firms.

“The rate fell within market expectations. Considering the environment of low interest rates where all IFBs have been trading at below 12 percent; this was definitely a pickup in the yield,” said Mr Minjire.

“Monies that don’t usually go into primary auctions or into fixed income securities will always find way into infrastructure bond leading to heavier bidding.”

The bond was issued in a period of high liquidity in the market that has seen the rates on Treasury bills trend downwards.

Of the accepted bids, Sh64.16 billion were competitive while the remainder were not. The bond interest will not attract tax – amounting to 10 per cent – normally charged on the other issues.

It will be redeemed in phases, with the first one scheduled for October 2030 and the last one for October 2035, which is also the full maturity date of the issue.

CBK had said the proceeds will be used for funding of infrastructure projects in the current financial year. Government intends to spend Sh701 billion on development.

Mr Minjire said with the expectation of repeal of interest rates, CBK had to offer relatively higher rate to stop investors from holding on to money.

“The expected repeal meant CBK had to put in a premium so that even if there was a knee-jerk reaction after repeal is confirmed, you are still within market,” he said.