The government is set to raise Sh40 billion in August after the issuance of a new two-year bond, alongside the reopening of a five-year bond.

Amid concerns of potential government defaults, investors have been gravitating towards short-term papers, prompting the government to explore different avenues to raise funds domestically.

The two-year bond’s coupon rate will be determined by the market, allowing for flexibility in attracting investors. In contrast, the five-year bond will have a fixed coupon rate of 16.8 per cent, offering investors a predictable return over a more extended period. The national Treasury has scheduled the auction date for both bonds on August 16, 2023.

“Central Bank of Kenya acting in its capacity as the fiscal agent of the Republic of Kenya invites bids for the bonds whose conditions are as follows,” said CBK in its latest prospectus.

Short term-funding

The decision to pursue short-term funding comes amidst recent downgrades of Kenya’s credit rating by prominent rating agencies, Fitch and Moody’s.

The downgrades have raised concerns among international investors, making them cautious about committing to long-term bonds.

As a result, the government may experience challenges in raising funds internationally and is increasingly relying on the domestic market to meet its financing needs. The uncertain economic climate and downgrade of Kenya’s credit rating are factors that have contributed to investor apprehension. The government is now keen on demonstrating its commitment to honouring its financial obligations by issuing shorter-term bonds. Medium-term bonds such as the 5-year bond are attracting 16.8 per cent returns which is detrimental to the government’s liquidity.