Kenya’s 25-bond bond is 3 times oversubscribed

Kenya’s Government has successfully issued a 25-year bond, which sets a marker for the capital market, points the way for other African markets to follow, and is a major boost for investor confidence. It also helps the Government access cheaper and longer-dated debt, according to a report in The Nation newspaper (www.nation.co.ke), as stiff competition meant the bond was issued at a low interest rate.
The 25-year bond, priced at an indicative coupon of 11.25% and redeemable in 2035, raised KSh7.5 billion (US$91.7 million) at good interest rates as the average rate was 10.46%.
The Nation quotes Mr Duncan Kinuthia, head of fixed income at Bank of Africa: “The return is very low for a bond with such a tenor, which explains the excess liquidity in the market looking for investment opportunities but with not many options.”
Accordig to Bloomberg, the bond was 3 times oversubscribed, as the Central Bank of Kenya (www.centralbank.go.ke) received 586 bids totaling KSh 27.1 billion, citing Jackson Kitili, Monetary Operations and Debt Management Director at the bank: “The number of bids accepted was 248 worth KSh 7.5 billion and the weighted average rate of successful bids was 10.458%.”
The bond was listed at the Nairobi Stock Exchange (www.nse.co.ke) for secondary trading and the price climbed quickly, dropping the yield to 9.9%, says the report, citing the forecast of Fred Mweni, managing director of Tsavo Securities and chairman of Bond Traders Association of Kenya: “I see it settling at the rate of 9.5%.”
The Treasury bond was oversubscribed by over 260% with bids for a total KSh27.1 billion, showing the interest in Kenya fixed income investments. The Government has been seeking ways to lengthen the maturity of its debts. In the past 3 years it has offered 20-, 15-, 12- and 10-year bonds, boosting its debt maturity from 3.8 to 5.5 years. By going long-term the government has also lowered the refinancing risk by reducing the proportion of domestic debt to be refinanced within 12 months from 40% as in December 2008 to 28% at the end of June 2010.
“It is also an opportunity for the government to move in and retire the expensive debt that it is holding,” Mr Mweni says.
The Central Bank website records that annual inflation was 3.88% by May 2010 and the last 6-month Treasury Bill auction went at a yield of 2.45%. The Nation says that pressure is eased for servicing Government debt, which is projected to hit KSh1.1 trillion, equally shared between the domestic and external borrowing.

2 Responses to “Kenya’s 25-bond bond is 3 times oversubscribed”


  1. Charles Gundy

    Congratulations to Kenya for getting such a long dated bond away in the market. I might be wrong but 25 years sounds unprecedented. Well done and hopefully other sovereign nations in East Africa will follow suit.
    Charles Gundy – North Face Consulting

  2. Tom Minney

    You are right, the East Africans are starting to reap the benefits of dedicated capital market development. Now it is up to Tanzania to catch up. However, other African countries still have a long way to go in reaching this target. It is much better to raise sovereign debt than foreign long-term loans.