Kenya raises Sh241b in oversubscribed infrastructure bond

The government has raised Sh240.9 billion in the latest infrastructure bond issued by Central bank of Kenya (CBK) which has been oversubscribed by 412.37 per cent, indicating a strong investor confidence in Kenya’s economic prospects, and the government’s fiscal management.

David Luusa, CBK through the director, Financial Markets indicated that the 8.5-year Treasury Bond (IFB1/2024/8.5) to fund infrastructure projects received an overwhelming response from investors.

“Total bids received amounted to Sh288.7 billion, thereby significantly surpassing the total amount offered of Sh70,000 billion,” he disclosed in a statement released Wednesday evening.

However, the oversubscription does not equate to full acceptance of all bids. In this case, only Sh240.9 billion was accepted, which is less than the total bids received.

This practice is common in bond auctions as it helps maintain market stability and prevents the issuance of excessive debt. It is a delicate balance that ensures the health of the financial markets while meeting the government’s funding needs.

Tax-free securities

Faith Atiti, the Head of Research and Analysis at DTB Bank had predicted the issue would exceed demand by over Sh200 billion, reflecting the high liquidity and appetite for long-term, tax-free securities in the Kenyan market.

The sale of the bond, which started on January 24, 2024, concluded on Tuesday, with payment and valuation scheduled for February 19, 2024. It has a maturity of eight and a half years, making it an attractive prospect for investors seeking long-term investments. While speaking at the annual DTB Bank Economic and Sustainability forum on Wednesday, Atiti highlighted several factors contributing to the bond’s allure.

These include robust local and international demand, tax-free incentives, escalating interest rates, the positive influence of the $1.5 billion (Sh228 billion) Eurobond, a weakening US dollar, and promising returns.

Interest rates

“We have seen a lot of foreign investor interest in the paper and even locally. As much as yes, liquidity is tight, everyone is really looking at booking it in, partly because we see interest rates turning very soon. So, if you can book in that 18.7-19 per cent yield and remember it is tax free, it is like the best business you will do for the year,” Atiti ahead of release of the CBK results.

She said the turn in the shilling, and the issuance of the $1.5 billion Eurobond was also helping. By yesterday the shilling was still sustaining its rally, trading at Sh155.50 against the greenback.

Furthermore, Atiti noted that the issuance of the Eurobond is likely to boost market liquidity, paving the way for more investment opportunities in the infrastructure bond.

This is not the first time such a successful bond auction has taken place in Kenya. Back in May 2022, an 18-year Infrastructure Bond worth Sh75 billion was issued, where CBK received bids worth Sh76.4 billion of which Sh73.8 billion was accepted.

While both bonds have been successful, the recent Sh70 billion bond has attracted a higher volume of bids, suggesting a stronger investor response.