The government is once again looking to the domestic debt market to raise funds, this time targeting Ksh65 billion through the issuance of two-year fixed coupon Treasury Bonds.
This announcement, made by the Central Bank of Kenya (CBK), is aimed at fulfilling fiscal requirements.
The Central Bank of Kenya (CBK) kicked off the process by announcing the reopening of the FXD1/2023/02 bond, aiming to raise Ksh40 billion with its 16.97% coupon.
Additionally, they plan to sell previously issued bonds - FXD1/2023/05 and FXD1/2024/10 - both with coupons of 16.84% and 16.0%, respectively, targeting Ksh25 billion. The expected yield for these bonds is approximately 16.0%.
The coupon rate is the amount of annual interest income paid to a bondholder, based on the face value of the bond.
Investors should be aware that these bonds come with an Accrued Interest (AI) of Ksh2.9375 per Ksh100, and withholding tax is calculated based on clean prices. For example, a quoted yield of 16.9723% would result in a price of Ksh102.9, including both the clean price and AI.
The prospectus for the reopened bond, FXD1/2023/002, indicates a total value of Ksh40 billion, and it will be open for subscription from March 28, 2024, to April 17, 2024.
Interest payments on this bond are scheduled for August 19, 2024, February 17, 2025, and August 18, 2025.
Interested parties are encouraged to direct enquiries to the Central Bank of Kenya's Financial Markets Department or visit the CBK website for detailed information.
The issuance method involves a Multi-Price Bid Auction, allowing for both competitive and non-competitive bids. Non-competitive bids are capped at Ksh50 million per CSD account per tenor.
The results of successful bids will be available on April 19, 2024, along with payment details.
Defaulters may face suspension from further investment in Government Securities, while licensed placing agents stand to earn a commission of 0.15% of actual sales, net of withholding tax.
In a broader economic context, the government's increased borrowing targets for the current financial year reflect concerns over lower-than-expected tax collections.
The Treasury in January revised down its revenue forecasts, citing a collection rate of just 34.6% during the first five months of the fiscal year, compared to 40% during the same period the previous year.
The Treasury now aims to borrow Ksh886.6 billion during the 2023/24 financial year, up from the original target of Ksh718.9 billion set in the previous budget.
Despite achieving 92.1% of its borrowing target for the 2022/23 fiscal year, the government faces ongoing challenges in revenue generation.
