Kenya’s Treasury has returned to the financial market for Ksh21 billion ($145 million) via a tap sale of its August bond issuance, looking to mop up the funds that the Central Bank of Kenya (CBK) had rejected in the initial sale due to high interest demands from bidders.
The tap sale on the dual-tranche bond that combines a two-year and a reopened five-year paper, opened on Tuesday and will run until August 24, but can end earlier once the target amount is achieved.
In the initial sale, which closed last week, investors bid a total of Ksh53 billion ($366 million) on the bond, but only Ksh19.1 billion ($131.9 million) out of these offers was taken up by the Central Bank due to high interest demands.
The two-year attracted the bulk of the bids at Ksh38.3 billion ($264.5 million), with an average rate demand of 17.55 percent.
The CBK took up Ksh11.7 billion ($80.8 million) on this paper, at an average rate of 16.97 percent.
On the reopened five-year paper, which came with a coupon rate of 16.84 percent, investor bids stood at Ksh14.7 billion ($101.5 million) at an average demanded rate of 18.16 percent. The State accepted Ksh7.45 billion ($51.4 million) on this tranche.
Given that the coupon rates of the tap sale are locked in line with the initial sale, the government will now be able to mop up part of the Ksh33 billion ($228 million) left on the table at rates, which are lower than what was originally demanded by bidders.
With the Central Bank having announced earlier that the Treasury has cut the domestic borrowing target for the current fiscal year from Ksh586.5 billion ($4.1 billion) to Ksh316 billion ($2.2 billion), it was less inclined to entertain expensive bids in the sale.
While the CBK has expressed optimism about a quick impact of the target revision on rates, analysts are more cautious, saying it would likely be seen only after the reduction is reflected in slimmer targets of securities offers, and a drawdown of the enhanced external funding that has been identified to replace domestic lenders.