State seeks to raise Sh40b in new bond issue

A Standard Gauge Railway (SGR) Cargo train loaded with exclusive Maersk containers leaves the port of Mombasa on Frida,018th ma,2018.These cargo being destined for ICD Nairobi are among those being handled by the Port of Mombasa.[Maarufu Mohamed,Standard]

The Government is trawling the debt market again for long-term and short-term loans, as it seeks to raise Sh40 billion to plug the budget deficit.

In the latest auction that closed yesterday, the National Treasury issued two-year and 15-year bonds.

Gauging by the latest Nairobi Securities Exchange (NSE) yield curve, investors are likely to fetch around the current rates at 11.08 per cent for the two-year bond and 12.65 per cent for the 15-year.

“This is a strategy aimed at capturing the interest of the entire market. They hope to raise Sh40 billion for budgetary support,” said Standard Investment Bank in a note to investors.

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The new two-year bond is the first short-term issue by the Government in the current fiscal year, while the 15-year one will be the second for the fiscal year.

The Government seeks to extend the maturity profile of the domestic debt. The current domestic debt increased marginally to Sh2.54 trillion during the week ended January 11, 2019.

About 60.9 per cent of local debt is held in bonds, while a whopping 35.4 per cent is short-term overdraft facility known as Treasury Bills (T-Bills), which range from three months to one year.

Central Bank overdraft stands at Sh60.35 billion or 2.37 per cent of domestic debt, while other domestic lenders, including individuals, have given Sh1.24 per cent to the State.

Treasury faces a cash crisis following a delay in disbursing money to the counties, the Education Ministry and a fast-approaching deadline to pay back two syndicated loans and the principle on the Eurobond in the coming months.

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Reports indicate schools expecting cash from the Education Ministry are yet to receive their share of the disbursement.

In March, Kenya will have to pay a commercial loan to Britain’s Standard Chartered Bank amounting to $766 million (Sh76.6 billion) as well as a $750 million (Sh75 billion) five-year Eurobond by June.

Before the end of June, another Sh37.1 billion syndicated loan arranged by Trade and Development Bank, formerly PTA Bank, will be due, bringing the total of loans to be paid in six months to Sh200 billion.

Kenya is also expected to pay about Sh56.7 billion or 0.7 per cent of Gross Domestic Product for the Standard Gauge Railway this year, according to the Budget estimates for the next financial year, as presented by Treasury.

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GovernmentNSENational TreasurySh40 billionState