National Treasury to Raise Sh10B in Tap Sale – CBK

The National Treasury wants to raise Sh10 billion in a tap sale, from an Sh50 billion bond sold in 2017, as it seeks an opportunity for a major bond sale to retire older loans.

“Central Bank of Kenya is pleased to offer eligible investors an opportunity to participate in a Tap Sale of the above Fixed coupon Treasury Bonds whose details are as in the prospectus issued value date 16/01/2023. The Tap Sale will be offered on a first-come-first-served basis,” said Central Bank in an advertisement for the sale.

A tap sale is a procedure that allows the borrower (National Treasury) to sell bonds or other short-term debt instruments from past issues. The bonds are issued at their original face value, and maturity, but are sold at the current market price.

This is as Kenya tries to avoid issuing domestic bonds due to high-interest rates. Central Bank of Kenya (CBK) Governor Dr. Parick Njoroge told Bloomberg that the country will be going to foreign markets soon to borrow in order to service debts maturing early this year.

Bloomberg data shows that 2023 will see the highest number of emerging market foreign currency bond issues of the last five years. The high demand coupled with tight global market conditions could see rates stay high.

“Central Bank of Kenya will rediscount the bonds as a last resort at 3 percent above the prevailing market yield or coupon,” CBK said.

The tap sale comes at a time when commercial banks are cutting down their holdings of sovereign debt due to rising vulnerabilities.

According to Sanlam chief investment officer Shritesh Nanji in a market outlook report, global shocks have exposed Kenya’s vulnerability due to exposure to foreign currency debt, coupled with a higher debt-to-GDP ratio,

“The rise in global interest rates has strengthened the dollar and resulted in capital outflows from emerging and frontier markets back into hard currency assets. This has limited the capacity of developing countries to access international debt markets causing significant challenges and vulnerabilities,” Nanji said, noting that this risk comes amid a Eurobond repayment of Sh248 billion  ($2 billion) in June 2024.

Experts at ICEA Lion Asset Management projected Kenya’s Gross Domestic Product to grow six percent in 2023 owing to the return of normal or near-normal rainfall that will boost agricultural production.

During the release of the Investor Pulse for Q1, 2023 released on Wednesday, experts noted that they expect the resumption of the long rains season to reverse the agricultural contraction experienced in 2022.

The crucial agriculture sector faced a second successive year of contraction in 2022 due to the effects of the La Nina weather phenomenon that reports indicate may now be coming to an end.

“The non-recurrence of the drought and the general election that constrained growth in 2022 would give an uplift to a number of key economic sectors in 2023. Specifically, the agriculture, manufacturing, transport, information/communication and financial services sectors are expected to rebound the most in 2023 in the absence of the factors like drought and elections that impacted growth in 2022,” ICEA LION Q1 Investor Pulse read.

The country’s inflation has remained above the preferred 7.5 percent since June last year hitting a five-year high of 9.6 percent in October before easing to 9.5 and 9.1 in November and December, respectively.

“We expect the inflation to go below the statutory requirement rate of 7.5 percent in the course of the year,” said Einstein Kihanda, ICEA Lion asset management CEO.