In a strategic move aimed at bolstering its financial reserves, the Treasury has reentered the market, conducting a tap sale to secure Sh21 billion through its August bond issuance. This initiative follows the initial bond auction that faced challenges when the Central Bank of Kenya (CBK) declined offers amounting to Sh33 billion due to excessive interest rate demands from potential bidders.
The tap sale pertains to a dual-tranche bond comprising a two-year and a reopened five-year paper. The sale, which commenced on Tuesday, is scheduled to continue until August 24, although it can conclude earlier if the target amount is reached before the specified date.
During the preliminary auction that concluded last week, investors exhibited keen interest, submitting bids totaling Sh53 billion for the bond. However, the Central Bank opted to accept only Sh19.1 billion from these bids due to the substantial interest rate expectations set forth by bidders.
The two-year segment of the bond garnered the lion’s share of bids, amassing a total of Sh38.3 billion with an average rate demand of 17.55 percent. Within this category, the Central Bank approved Sh11.7 billion at an average rate of 16.97 percent.
In the case of the reopened five-year paper, which carried a coupon rate of 16.84 percent, investor bids reached Sh14.7 billion, accompanied by an average demanded rate of 18.16 percent. Notably, the government accepted Sh7.45 billion for this tranche.
One of the salient aspects of the tap sale is that it maintains coupon rates consistent with those established during the initial sale. Consequently, the government is poised to secure a portion of the previously untapped Sh33 billion at rates lower than the original bids, providing a beneficial outcome for the treasury.
The decision to engage in this tap sale aligns with the Central Bank’s prior announcement of a reduction in the domestic borrowing target for the ongoing fiscal year, down from Sh586.5 billion to Sh316 billion. This adjustment rendered the Central Bank less inclined to entertain bids that carried steep costs in the initial auction.
With the successful commencement of the tap sale, market experts are closely observing the progression of bids as the Treasury works towards achieving its target, potentially further strengthening the country’s financial position.
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26th August , 2023
Delino Gayweh
Serrari Financial Analyst
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