The Central Bank of Kenya raised KSh 130.8 billion via two infrastructure bonds in a highly oversubscribed auction, receiving bids of KSh 193.9 billion against a KSh 70 billion target. Both bonds, originally issued in 2022 and 2023, saw high demand due to declining interest rates. T-bills were also oversubscribed, with yields decreasing, while a domestic bond buyback program was announced to address refinancing pressures.
The Kenyan government, via the Central Bank of Kenya (CBK), has successfully raised KSh 130.8 billion through the reopening of two infrastructure bonds during its latest auction. This auction attracted overwhelming interest, garnering bids worth KSh 193.9 billion, significantly exceeding the targeted KSh 70 billion, resulting in a subscription rate of 277%. However, the CBK accepted only 67.5% of the total bids, rejecting KSh 63.1 billion worth as it aims to gradually lower rates.
The bonds consist of a 14-year instrument with a weighted average interest rate of 13.9784%, receiving bids of KSh 93.1 billion, and a 17-year instrument with a rate of 14.2806%, attracting KSh 100.8 billion in bids. Both bonds were originally issued in 2022 and 2023, respectively, with remaining tenors of 11.8 years and 15.1 years. The influx of investor interest is attributed to the current decline in interest rates, prompting a rush to secure higher returns.
The repayment structure for the 14-year bond includes the redemption of 50% of the principal on November 4, 2030, with the remaining half due six years later. In contrast, the 17-year bond stipulates payment of 50% on February 28, 2033, and the final payment on February 20, 2040. This clear structure allows investors to anticipate cash flow timelines, facilitating financial planning.
Additionally, the latest T-bill auction also witnessed excess subscription for the second consecutive week, achieving an overall oversubscription rate of 184.4%. The government approved KSh 25.1 billion from the KSh 44.3 billion in bids received, marking an acceptance rate of 56.8%. This underscored continued investor confidence in government securities amid shifting rate environments.
Yield rates for government papers are on the decline, with the 364-day paper’s yield dropping the most—decreasing by 0.2% to 10.6%. Similarly, yields for the 182-day and 91-day papers fell by 0.14% and 0.1%, respectively, now standing at 9.4% and 9.0%. Lower yields reflect easing monetary conditions, improving accessibility to government financing.
Recently, the CBK initiated its first domestic bond buyback program, allowing investors to sell specific bond issues worth KSh 50 billion ahead of their maturity. Targeting three bonds—comprising a 3-year, 5-year, and an infrastructure bond due in mid-2025—this strategy aims to alleviate refinancing pressures as investments near maturity, reflecting proactive financial management efforts by the government.
In conclusion, the Kenyan government successfully raised KSh 130.8 billion through an oversubscribed infrastructure bond auction, reflecting strong investor interest amid declining interest rates. The bond repayment structures are designed to provide structured cash flows for investors, while ongoing T-bill oversubscription and lower yields signal robust market dynamics. The initiation of a domestic bond buyback program further emphasizes the government’s commitment to managing refinancing risks effectively.
Original Source: kenyanwallstreet.com
