The Central Bank of Kenya (CBK) rejected Sh20.4 billion offered by investors in the two reopened September bonds as it sought to keep a lid on the government’s borrowing costs in a highly liquid market.
The State’s fiscal agent accepted Sh47.7 billion out of the Sh68.1 billion offered by investors, some of whom are looking to reinvest funds received from maturities and coupon payments worth Sh172.9 billion last month.
The CBK was looking to raise Sh60 billion from the reopened 15-year and 30-year bonds which have 7.9 and 14.4 years left to maturity respectively.
Investors bid Sh57.1 billion on the 15-year paper, seeking average returns of 12.8290 percent incorporating a discount on the bond’s coupon or fixed interest rate of 12.34 percent.
The CBK rejected Sh15.96 billion of the offers, accepting Sh41.13 billion from which investors will earn returns of 12.7631 percent.
“It's a cost management approach and also a way of restructuring because we have seen most of the papers that are being issued are long-term papers, which are not less than six years,” said Shadrack Manyinsa, a research analyst at Pergamon Investment Bank.
“So, it's a debt management issue where we are seeing the government trying to manage short-term obligations while pushing maturities ahead,” said Shadrack Manyinsa, a research analyst at Pergamon Investment Bank.
The 30-year security was largely snubbed, receiving bids of Sh11.09 billion at an average rate of 13.7991 percent against the paper’s coupon of 12 percent.
Only Sh6.6 billion was accepted at a rate of 13.6937 percent, contributing to the underperformance of the auction.
Analysts say the longer-dated bond was not attractive to investors as it features a lower coupon rate and carries more future price risk compared to the 15-year security.
“We didn't expect much attention on the 30-year reopened bond just because it's a long-term paper and the coupon is quite low,” Mr Manyinsa said.
The lower coupon on the longer bond saw investors get a larger discount, lifting their returns to 13.6937 percent.
Investors in this paper will pay Sh90.3598 per Sh100. Those who went for the shorter security paid close to full price at Sh99.5615 per Sh100.
The state’s rejection comes at a time when it has no pressure to take new cash as it has no maturities during the month and it is running ahead of its domestic borrowing target.
The state’s net domestic borrowing in July and August stood at Sh406 billion against the full year fiscal year target of Sh987.4 billion. This means that the National Treasury has already tapped 41.11 percent of its annual domestic target easing pressure on it to take in additional cash.
The state mainly borrows from the domestic market through Treasury bonds, with a smaller share coming from Treasury bills and overdrafts from commercial banks and the CBK.
CBK efforts of keeping interest rates low have started bearing fruit with private sector credit growth touching double digits for the first time in two years in June at 10.28 percent. CBK has been aggressive in lowering interest rates in the market so as to spur lending to the productive private sector.
Looking forward, interest rates will be on the upside given prices of goods as reflected by inflation rates have been on the rise in the last three months which will be compounded by low food harvest reported in Kenya’s productive regions.
