Treasury ends annual local borrowing program on a high, raises Ksh.49 billion


Treasury ends annual local borrowing program on a high, raises Ksh.49 billion
File Photo of The National Treasury.

In Summary

  • Total bids received for the two bonds totalled Ksh.105.1 billion or an equivalent 262.84 percent as investors continued to favour the government safe haven amidst volatilities caused by the Covid-19 pandemic.
  • The high investor appetite helped the CBK to contain the return to the investor as the weighted average rate of the accepted bids closed at 11.186 percent and 12.415 percent respectively against coupon rates of 11.492 percent and 12.280 percent.
  • While the auction marks a gain to government, Sterling Capital Head of Research Renaldo D’Souza worries of a return to the starvation of credit to the private sector as banks favour government over its other clients due to its relatively lower risks.

The National Treasury has closed its local borrowing program for the year ending June 30 on a high, raising Ksh.49.3 billion against a target of Ksh.40 billion.

During the month, the Central Bank of Kenya (CBK)- Treasury’s principal local debt auctioneer re-opened sales to a five and ten year bond to see an overwhelming appetite for government debt instruments.

Total bids received for the two bonds totalled Ksh.105.1 billion or an equivalent 262.84 percent as investors continued to favour the government safe haven amidst volatilities caused by the Covid-19 pandemic.

Bids towards the shorter maturing five-year paper totalled Ksh.60.9 billion and in line with analyst expectations as the longer-tenured 10-year bond attracted bids worth Ksh.44.2 billion.

“In the current market environment where concerns over the spread of corona virus remains elevated and interest rate uncertainty prevail, investors are likely to focus on the shorter end of the yield curve. The FXD1/2020/5 is a short term bond making it attractive to investors. We expect the issue to be oversubscribed,” noted analysts at AIB Capital in its June primary auction note.

The high investor appetite helped the CBK to contain the return to the investor as the weighted average rate of the accepted bids closed at 11.186 percent and 12.415 percent respectively against coupon rates of 11.492 percent and 12.280 percent.

Proceeds from the pair of sales will see a partly Ksh.31 billion go towards redemptions with the balance of Ksh.18.4 billion representing new borrowing.

The sale marked success for the exchequer which had already zeroed in on its annual domestic borrowing targets having raised a gross Ksh.476.9 billion as of April 30 against a Ksh.561 billion target.

While the auction marks a gain to government, Sterling Capital Head of Research Renaldo D’Souza worries of a return to the starvation of credit to the private sector as banks now highly favour government over its other clients due to its relatively lower risks.

“Banks continue to invest heavily in government in response to further deterioration in asset quality. The huge fiscal deficit financing needs suggests that government appetite for domestic debt will remain high. The biggest losers remain a private sector starved off credit,” he said.

While private sector credit has risen against the odds to nine percent in April, the hammer is expected to come down on new credit lines as the banking sector ratio of gross non-performing loans (NPLs) steeply rises having soared to 13.1 percent in April from 12.1 percent in February.

The National Treasury is meanwhile expected to retain its bias for local borrowing against its own recent proclamations and is set to raise a net Ksh.486.2 billion in the year commencing July 1.

For Citizen TV updates
Join @citizentvke Telegram channel



Video Of The Day: | BULLDOZERS FOR SANITIZERS | Families remain in the cold after evictions from Kariobangi sewage estate

Avatar
Story By Kepha Muiruri
More by this author