Treasury targets Sh30bn in Sept T-bond tap issue

The Treasury has reopened its September bond issue to a tap sale seeking to raise an additional Sh30 billion from the market.

The initial sale last month raised Sh32.6 billion, at a rate of 12.5 and 12.6 percent for the two 15-year bonds that sought to raise Sh50 billion.

The tap sale will run until Thursday, offering the same interest rate as that of accepted bids in the initial sale.

“Period of sale is Tuesday, October 1 to Thursday, October 3, or upon attainment of quantum, whichever comes first,” said Central Bank of Kenya (CBK), the bonds selling agent, in a notice published yesterday.

“Bids shall be priced at the weighted average rate of the accepted bids for the bond auction dated September 23, and adjusted for accrued interest.”

Investors undersubscribed the initial sale due to tight liquidity resulting from Central Bank’s aggressive mop-up weighed on the market.

This forced the CBK to take up the entire Sh32.6 billion that investors had offered, a rarity given the regulator’s stance in recent months of rejecting expensive bids from investors.

The pressure to take up all the funds on offer was partly informed by the high Treasury bond maturities worth Sh46.2 billion during the month, which needed to be rolled over.

Effectively, therefore, the government ended up making net bond repayments of Sh13.6 billion last month, which they are trying to claw back through the tap sale.

“The two bonds are long-term which typically do not attract a lot of attention. The fact that they took all the money can be viewed from the fact that they had over Sh40 billion in redemptions,” said Stanbic regional economist Jibran Qureishi in an interview after the bond sale.

The Treasury is also keeping an eye on the need to fulfil its domestic borrowing target of Sh300.3 billion for the current fiscal year. The target was revised upwards in August by 5.9 percent from the Sh283.5 billion read in the June 13 Budget Statement, hinting at a possible shortfall in projected tax revenue.

The Treasury has set a tax collection target of nearly Sh1.81 trillion this financial year for the Kenya Revenue Authority — Sh370 billion, or 25.69 percent, more than Sh1.44 trillion collected in the year to June 2019.