The Central Bank of Kenya (CBK) has re-opened bids for 20 and 25-year fixed coupon Treasury Bonds, first floated two years ago.
This is as the monetary authority seeks to borrow KSh 50 billion from the domestic bond market to finance the state’s monthly expenditure program.
The 25-year Treasury Bond has a tenor of 23.32 years and pays 13.4 percent interest. The 20-year Treasury Bond has an interest rate of 13.2 percent and a tenor of 18.07 years.
The two bonds will be on sale between March 3rd and 17th March, 2020. The long term debt instruments will mature on 1st March 2038 and 25th May 2043 for the 20-year and 25-year Treasury Bond respectively.
“It is quite in order to reopen the longer tenor bonds because this helps lengthen the maturity of debt. We now have more appetite for longer term Government paper.
The only sad bit in this narrative is that Treasury could be engaged in borrowing to support recurrent expenditure,” said Reginald Kadzutu, Head of Retail, Zamara.
Latest weekly data from Central Bank of Kenya (CBK) indicates that turnover of bonds traded in the domestic secondary market increased by 39.7 percent during the week ending February 27, 2020.
In the international market, yields on Kenya’s 7-year (2027), 10-year (2024), 10-year (2028), 12-year (2032) and 30-year (2048) Eurobonds rose by 3.6, 3.2, 4.3, 6.0 and 4.1 basis points, respectively.
The Treasury bills auctions of February 27 received bids totaling KSh 54.4 billion against an advertised amount of KSh 24.0 billion, representing a 226.7 percent subscription rate. Interest rates on the three Treasury bill tenors declined.
“Bonds remain favorable investment options. We recommend a BUY for this fixed coupon T-bond,” said Genghis Capital in a note to investors.
In the sale prospectus, CBK says that non-competitive bids are pegged at a maximum of KSh 20 million per CDS account per tenor. This does not, however, apply to state corporations, public universities and semi-autonomous Government agencies.
Investors are required to obtain details of amounts payable for successful bids from Central Bank of Kenya on 19th March 2020.
Licensed placing agents will be paid commission at the rate of 0.15% of actual sales (at cost) net of 5% withholding tax.
The Central Bank will rediscount the bond as a last resort at 3% above the prevailing market yield or coupon rate whichever is higher, upon written confirmation to do so from the Nairobi Securities Exchange. The Bonds may be re-opened at a future date and will be listed on the Nairobi Securities Exchange (NSE).
Only investors with active CDS Accounts with the Central Bank of Kenya, are eligible to deal with these financial instruments, whose minimum investment amount is KSh 50,000.00. The bonds will commence trading in the secondary market on Tuesday, 24th March, 2020.