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CBK seeks Sh70bn from three reopened April bonds
CBK is expected to find more success in lengthening the government securities yield curve as interest rates continue to fall, restoring the historical mix between Treasury bills and bonds.
The Central Bank of Kenya (CBK) is seeking Sh70 billion in new borrowing from the domestic market through three reopened bonds, ahead of heavy debt maturities in the next two months.
A prospectus for the sale shows that CBK, the government’s fiscal agent, will be auctioning a pair of reopened 15-year bonds, which were initially floated in February 2020 and April 2022, and a 25-year paper first sold in October 2022.
This is only the second time in the current fiscal year that the Treasury’s target from a monthly bond sale has hit the Sh70 billion mark, indicating the heightened need for cash to settle maturing bonds, while also meeting an expanded domestic borrowing target.
In February, the CBK sought Sh70 billion from a pair of reopened infrastructure bonds, with the proceeds from that sale partly earmarked to finance a Sh50 billion partial buyback of three bonds in the same month.
In the April bond sale, the government has opted to reopen the three bonds, which have maturities ranging from 9.9 years to 22.6 years.
The 15-year paper from 2020 has an interest rate of 12.76 percent, while the 2022 paper’s rate or coupon stands at 13.94 percent. The 25-year bond is paying a coupon of 14.18 percent, with all three papers attracting withholding tax of 10 percent on their interest payments.
The proceeds from the bonds are expected to help roll over upcoming maturities of about Sh174 billion on four bonds in April and May, including the three papers that were part of the February buyback.
On April 7, the Treasury will be paying back outstanding maturities of Sh51.3 billion on a three-year bond sold in 2022. The bond was partially redeemed to the tune of Sh9.3 billion last month.
On the same day, the Treasury will be making a partial repayment (amortisation) of about Sh38 billion on a nine-year infrastructure bond sold in 2020, whose maturity structure calls for an early repayment of 50 percent of its outstanding principal amount of Sh78.9 billion on April 7.
May’s maturities comprise the balance of Sh69.4 billion on a five-year paper floated in 2020, and a Sh14.2 billion principal amount on a nine-year infrastructure bond initially auctioned in 2016.
The two papers were also included in the February buyback, where the five-year saw Sh35.1 billion worth of notes bought by the CBK, while Sh5.7 billion of the infrastructure bond was repurchased.
Aside from addressing the maturities, the CBK is also expected to increase its uptake of debt from the market to cover a Sh169.6 billion increase in the net domestic borrowing target to Sh582.3 billion in the current fiscal year as was revised in the second supplementary budget.
CBK estimates show, however, that it had raced ahead of target on the domestic borrowing plan with net collections of Sh653 billion prior to the supplementary budget revision, meaning it has headroom to absorb some of the maturities through its existing cash pile.
