Treasury issues Sh15bn bond

The Government has returned to the domestic market seeking to raise twice the amount it borrowed last month, using a 25-year bond paper.

Last month, Kenya became the first country in sub-Sahara Africa, outside South Africa, to issue a 25-year bond paper, raising Sh7.5 billion.

Treasury now wants to raise Sh15 billion by reopening last month’s bond.

The money borrowed will be repaid in 2035 with interest paid biannually.

Interested investors have until 2 p.m. July 20, 2010 to submit their bids, according to a press ad placed in the Daily Nation on Thursday.

The debt is part of the planned Sh105 billion in domestic borrowing to finance the Sh1 trillion budget tabled by the Finance minister, Uhuru Kenyatta, in June this year.

The June’s issue was oversubscribed by over 260 per cent after investors returned bids worth Sh27 billion against the offered Sh7.5 billion.

By returning to the market, Central Bank of Kenya, the government’s borrowing agent, is hoping to capture investors who missed out in June’s issue.

The bond is priced at an indicative coupon rate of 11.25 per cent.

However, cutthroat competition among investors depressed the average interest rate on the debt to 10.5 per cent.

Experts project the market rates to fall further.

“Because of the factors at play, we expect the low rates to persist until the end of the year,” says Mr David Achungo, investment manager at PineBridge Investment East Africa.

The move to turn to longer dated bond papers is within the government objective to lengthen the maturity profile of its debt as a way to access cheaper debt.

The 25-year bond adds to the 20-year, 15-year, 12-year and 10-year bonds that have been launched in the past three years, helping to increase Kenya’s debt maturity from 3.8 years to 5.5 years.

By going long-term, the government has also lowered the refinancing risk by reducing the proportion of domestic debt to be refinanced within 12 months from 40 per cent as of end December 2008, to 28 per cent as of end June 2010.