CBK eyes Sh20bn in reopened March infrastructure bond

The Central Bank of Kenya (CBK) is seeking to raise Sh20 billion from the tap sale of the March infrastructure bond.

The secondary sale of the tax-free paper is expected to run until Friday or upon attainment of the amount targeted by the government’s fiscal agent which is accepting applications on a first-come-first-served basis. CBK is seeking to leverage the attractiveness of the bond to raise the amount with the paper’s primary sale having been oversubscribed significantly.

Investors had placed bids of Sh59.77 billion against the target of Sh50 billion. The CBK accepted Sh50.88 billion in the initial sale of the security which came with a tax-free interest rate of 14.39 percent, making it the highest-yielding paper outstanding.

The principal amounts to be paid by investors will be adjusted by a small premium to take into account the interest that has already accrued on the security. Investors applying for a Sh100,000 bond face value, for instance, will be required to pay Sh100,268.

The tax-free status of infrastructure bonds typically drives the oversubscription of the securities with other government bonds attracting tax rates of between 10 percent and 15 percent. The higher returns offered by the Treasury instruments have mirrored the willingness of the CBK to take up more expensive bids which reflects pressure on the government to raise revenue.

At the same time, analysts have pointed to heavy domestic maturities as added pressure on the government to accept higher yields in bond issuances.

The National Treasury has leaned on domestic borrowing to plug its 2022/23 budget hole estimated at Sh833.9 billion with external commercial financing proving to be too exorbitant off the back of rising global interest rates.

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