Treasury adds Sh81bn to debt in April bond sale

The National Treasury exceeded its target from the April infrastructure bond (IFB) issue by Sh21.9 billion, pointing to increased appetite for domestic borrowing amid expanded expenditure and lower revenue collection.

Government had targeted Sh60 billion from the bond, but on getting Sh88.6 billion bids from investors, it took up Sh81.9 billion. The 18-year bond will earn investors 12.67 per cent.

“The IFB was oversubscribed as predicted due to its tax-free status and capital flight by risk-averse investors from the Nairobi Securities Exchange (NSE), with the Central Bank of Kenya (CBK) accepting more than issued to bridge its growing fiscal deficit amid declining revenues,” said Sterling Capital in a note on the bond result.

This was the third infrastructure bond sale in the 2020/21 fiscal year, with the 11-year paper sold in August 2020 and January 2021’s 16-year offer also raising huge subscriptions of Sh101.5 billion (Sh78.6 billion accepted) and Sh125.5 billion (Sh81 billion accepted), respectively.

Public anger

The April sale was done at a time when there is growing public anger at the country’s debt load, although this attention has mainly been focused on external debt following the disbursement of the first tranche of a $2.34 billion (Sh257 billion) loan from the International Monetary Fund (IMF).

Total public debt stood at Sh7.35 trillion at the end of January. The April IFB, sold when there were no bond maturities, takes the Treasury’s net domestic borrowing for the fiscal year to about Sh447 billion — 78 per cent of the current Sh572.7 billion target.

Genghis Capital analysts project that Treasury will raise local borrowing target further before the end of fiscal 2020/21 due to the expanded expenditure vote in the supplementary budget and the continued lag in overall revenue performance.

“We calculate a funding gap of Sh73.15 billion that is most likely to be plugged by increased domestic borrowing,” Genghis said.

Government hopes to borrow Sh1 trillion net from domestic and external markets in fiscal 2020/21, meaning, it’s likely to take up a commercial loan from either the Eurobond or syndicated loan market to supplement the domestic and IMF credit.