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Projects bond take up falls short

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Central Bank of Kenya. FILE PHOTO | NMG 

The Treasury has fallen short of target in the tap sale of the Sh50 billion infrastructure bond, raising only Sh8.7 billion out of the target Sh22.4 billion.

The 20-year bond had raised Sh27.6 billion in the initial sale earlier this month, forcing the government to return with a tap sale to raise the balance of the cash.

Analysts at Genghis Capital attributed the shortfall in the second sale to a tight market, even as investors got more time to put in bids (one week) compared to the first sale where they had only two days to construct an offer.

“The bond tap sale showed an under-performance at Sh8.73 billion in bids — against Sh22.4 billion offered — and fell in line with our expectation,” said Genghis in a market note.

The bond is paying interest at 12.16 per cent, slightly higher than the printed coupon of 11.9 per cent, although this is still within the yield curve for paper of that duration which lies at around 13 per cent.

Of immediate concern, however, for the Treasury is the shortfall of Sh13.4 billion in the targeted amount for the bond, which adds to the general underperformance of bond auctions in the first five months of the fiscal year.

Since July, the government has accepted bids worth Sh121.8 billion in six bond issues, from which it was seeking a total of Sh242 billion.

This has left the Treasury to rely more on shorter-term Treasury bills to plug the domestic borrowing gap amid high debt maturities.

Maturities stand at a steep Sh188.6 billion for Treasury bills in November and December, and Sh60.1 billion for bonds in the same period.

The latest Treasury projections put the budget deficit for the 2018/19 fiscal year at Sh575.8 billion, equivalent to 5.8 per cent of GDP.

This will be financed through net domestic borrowing of Sh299.8 billion, other domestic receipts of Sh3.9 billion and net external borrowing of Sh272 billion, the latter likely through a Eurobond issue.

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