Kenya floats 291 mln USD bond to fill budget deficit

Kenya is selling two ten-year bonds worth 291 million U.S. dollars as it seeks to fill a budget deficit before the close of the fiscal year in June.

The two bonds, FXD 3/2008/10 and FXD 1/2009/10, are up for sale from April 10 to 18 at the Central Bank of Kenya (CBK) and will later be listed at the Nairobi Securities Exchange's secondary market from April 25.

"The Central Bank, acting as a fiscal agent for the Republic of Kenya, is offering the investing public an opportunity to invest in two ten-year fixed coupon Treasury bonds for budgetary support," said the apex bank in a prospectus Tuesday.

Interest rate on the long-term papers, the fourth to be floated this year, has been set at 10.7 percent, which is lower than the 11.9 percent for last month's offer.

Treasury last week presented the east African nation's 2017/2018 budget worth 26 billion dollars in parliament, with the country only raising slightly half the amount from taxes, leaving a huge deficit. The 2016/2017 budget was worth 23 billion dollars.

Analysts noted that the government has turned to the domestic market to raise funds due to the lengthy process during external borrowing.

"Given that the government only has three months to the close of the current fiscal year and the fact that borrowing from the foreign market is a much longer process than borrowing from the domestic market, the government is likely to use the latter to plug in the deficit that is likely to arise," said Cytonn, a Nairobi-based investment firm.

Cytonn, however, warned that the borrowing creates uncertainty in the money market as it exerts upward pressure on interest rates, and results in longer term papers not offering investors the best returns on a risk-adjusted basis.

"It is due to this that we think it is prudent for investors to be biased towards short-term fixed income instruments," said the firm. Endit