State eyes Sh5b infrastructure bond tap sale
The National Treasury has gone back to the market for Sh5 billion through a tap sale at 13.9 per cent interest rate.
This despite a presidential directive that Treasury desists from borrowing at more than 10 per cent. It comes shortly after the government borrowed Sh60 billion last week but ended up taking Sh75 billion instead.
“Investors should obtain details of amounts payable for successful bids from the Central Bank of Kenya (CBK) on Wednesday 23rd November 2022,” Treasury said.
Following his predecessor’s debt-driven infrastructure construction boom that burdened East Africa’s largest economy with high-interest commercial debt, President William Ruto is looking for less expensive loans.
Speaking at a gathering of executives from the pensions industry streamed online by his office, President Ruto said: “If we find that in the market we cannot obtain money at 10 per cent, we will go back and re-look at alternative sources.”
Weighted average yield
“We cannot borrow at rates higher than 10 per cent... Our most recent financing cost us 14 per cent. It’s not acceptable,” he added, referring to an oversubscribed Sh60b infrastructure bond.
In a statement, CBK reported that the weighted average yield on a 14-year Treasury bond auctioned on Wednesday was 13.9 per cent.
But analysts, including central banker Mohammed Wehliye argue that the president’s severe instruction will make it difficult for money markets and the government itself to survive.
“Both the government and the financial markets will be closed. I’m not convinced the National Treasury supports these kinds of judgments. If they do, we are in for a greater issue! Let’s hope that this was only a conversation!” Wehliye, a senior advisor at the Saudi Central Bank tweeted last Friday.
Pending bills
The economist went on to say that because of the existing minimum borrowing rate imposed by the CBK, it is hard for lenders to earn a profit at interest rates below 10 per cent.
This even as the government will soon be looking for Sh500 billion to clear its pending bills and with the current tight conditions in the market, it is not known how the government will raise the funds.
Infrastructure bond are usually oversubscribed because of their tax advantages.
