Treasury floats Sh31.6 billion infrastructure bond

By Morris Aron

Treasury has invited bids for a Sh31.6 billion infrastructure bond with varied maturities tenures of six, seven and nine years at a coupon rate of six per cent.

This follows deliberations that included the market leaders forum and recent past yield trends of fixed security instruments.

The proceeds of the bond — the fourth such this year — will be used to fund specific roads, energy and water projects as specified in the 2010-11 budget read in June.

Central Bank Governor Njuguna Ndung’u said the infrastructure bond will serve a double-faced role.

"The infrastructure bond will not only raise the required capital, but it will also act as a benchmark for designing future project-specific bonds issued at the capital markets by private and public enterprises," he said.

"We expect this debt instrument to result in significant portfolio shift in the bond market."

The biggest chunk of the bond proceeds Sh17.15 billion — 52.3 per cent — will go towards funding the energy sector, including project works by the Geothermal Development Authority and Kenya Electricity Transmission Company to undertake exploration of geothermal resources and upgrade transmission lines.

Sh6.07 billion — which accounts for 19.2 per cent of the total issued bond amount — will be directed towards funding construction of new roads and overhaul of existing ones while a further Sh8.35 billion — 26.5 per cent — will be allocated to the water sewerage and irrigation sector.

Potential investors expected to take up this issue include commercial banks, insurance firms, pension funds, private firms and international investors. They will be exempted from paying withholding tax of ten per cent.