In a strategic move, the Central Bank of Kenya (CBK) has unveiled plans to generate KSh 40 billion through its forthcoming Treasury Bonds (T-Bonds) tap sale scheduled for August. The CBK, cognizant of the financial landscape, intends to reinforce its financial reserves for crucial budgetary requirements. The importance of this initiative is underscored by its potential implications for the economy and the financial sector.

The procedure involves the rediscounting of the T-Bonds, a contingency measure that would be employed as a last resort. This step would be carried out at a rate of 3% above the prevalent market yield or coupon rate, selecting the higher of the two. However, such a move would only be executed upon receiving written confirmation from the Nairobi Securities Exchange (NSE).

Investors holding the 2-year T-Bonds will have the opportunity to redeem their holdings on August 18, 2025. Similarly, holders of the 5-year T-Bonds will experience their holdings’ redemption date on July 10, 2028. The T-Bonds will be listed on the Nairobi Securities Exchange, a significant move that enhances the accessibility and liquidity of these financial instruments. To engage in this opportunity, investors are required to possess active Central Depository System (CSD) accounts with the CBK.

An interesting aspect to note is the potential for future reopening of these bonds, suggesting the dynamic nature of the financial markets. Additionally, secondary trading will commence on August 22, 2023, in multiples of KSh 50,000.00, providing investors with the flexibility to engage in these instruments actively.

The CBK’s issuance of two fixed coupon Treasury Bonds in August, a cornerstone of this endeavor, is in line with the central bank’s strategy to address budgetary needs. These bonds are being made available through a tap sale, a process initiated on July 31 and set to continue until the auction date of August 16, 2023. The value date for successful bidders is August 21, 2023.

A noteworthy development supporting this initiative is the CBK’s introduction of the DhowCSD mobile app. This app serves as a platform for disseminating crucial information to investors, providing them with details of amounts payable for successful bids. The DhowCSD app, a novel addition, enhances transparency and accessibility, streamlining the investment process. Investors can access this information on August 17, 2023, and the results will include a unique transaction reference, facilitating seamless payment procedures.

The CBK has outlined specific terms for successful bidders. The two-year Treasury Bonds will feature a market-determined coupon rate, while the 5-year Treasury Bonds will carry a fixed coupon rate of 16.8%. This strategic issuance has been meticulously planned, allowing for a well-defined timeline. The tap sale, initiated on July 31, will run until August 16, 2023, ultimately benefiting successful bidders on August 21, 2023.

To partake in this opportunity, interested parties must submit their Treasury Bonds bids electronically to the Central Bank via the CBK DhowCSD or Treasury Mobile Direct (TMD) by 10:00 am on August 16, 2023. Furthermore, licensed placing agents will receive a commission rate of 0.15% of actual sales, net of a 5% withholding tax.

In essence, the CBK’s pursuit of KSh 40 billion through the August T-Bonds tap sale underscores the institution’s commitment to strengthening its financial position while effectively managing the country’s budgetary needs. This move not only enhances the financial landscape but also emphasizes transparency and accessibility through innovations like the DhowCSD app. The implications of this endeavor ripple through the economy, impacting various stakeholders and highlighting the dynamism of the financial markets.

August 1, 2023 Delino Gayweh Serrari Financial Analyst

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