CBK Aims to Raise KSh50 Billion Through Infrastructure Bonds in August Auction
The Central Bank of Kenya (CBK) plans to raise KSh50 billion in August through a tap sale of reopened infrastructure bonds. These bonds, initially issued in 2023, are 6.5-year and 17-year terms with remaining maturities of 5.8 years and 15.7 years, respectively. They offer tax-free returns, with coupon rates of 17.93% for the 6.5-year bond and 14.39% for the 17-year bond.
Background and Context
The move comes after recent CBK bond sales saw significant under-subscriptions. The lowest performance was a 2.8% under-subscription, which indicates investor hesitancy due to perceived high risks and demand for higher returns in the current high-interest-rate environment.
Recent Performance of Bonds
The initial sale of the 6.5-year bond saw bids worth KSh88.9 billion against the KSh50 billion offered, marking a 177.8% oversubscription. However, the CBK accepted only KSh67.1 billion, rejecting higher-cost bids. In contrast, the 17-year bond received bids totaling KSh59.8 billion, reflecting a 119.5% oversubscription. The accepted weighted average rate was 14.3999%.
CBK’s Strategy
Despite missing targets in recent auctions, the CBK is steering investors towards longer-term bonds. This strategy aims to reduce reliance on shorter-term papers, which have been more popular among investors. The reopening of these bonds is seen as a strategic move to secure more funding for the government.
Investor Implications
Investors are keen on higher returns due to the current high-interest rates. The longer maturities of these bonds offer the potential for stable, long-term returns. However, the success of this auction will depend on investor confidence and their assessment of the government’s fiscal stability.
The CBK’s August auction is a critical step in addressing funding needs while managing investor expectations. The outcome will provide insights into market confidence and the effectiveness of the CBK’s strategy in promoting long-term investment.
