Investors at Kenya’s debt market this week suffered a blow as Central Bank of Kenya (CBK) rejected costly bids from a 12-year infrastructure bond, opting to borrow cheaply from Treasury bills instead.
The bank had early this month floated the over Sh30 billion (US$291 million) Treasury bonds as it sought money to fund projects in roads, water and energy sectors.
Having cancelled the January Treasury bond worth a similar amount due to high bids, analysts had predicted the February bond would be oversubscribed.
“The total number of bids received amounted to 340 million dollars,” said the CBK in auction statistics released Thursday. This is equivalent to Sh35.2 billion.
Yields on the bond stood at 13.5 percent, an increase of two percent since the last auction of the bond in March 2015.
The apex bank accepted a paltry Sh6 billion (US$58 million) out of the Sh35.2 billion received, with analysts citing the high yield on the paper as the reason for the low absorption rate.
On the other hand, CBK offered 182 and 364 days Treasury bills worth a total of Sh12.12 billion (US$117 million), Sh6.1 billion (58.5 million) for each.
“The total number of bids received was amounted to 240 million dollars representing a 412 percent subscription and 9.6 million dollars representing 18 percent subscription for 182 and 364 days, respectively,” said the CBK.
The regulator accepted Sh20.1 billion (US$194 million) from the 182-day bill at 10.5 percent, which was more than twice what it had sought, while for the 364-day bill, the bank accepted all the bids at 10.9 percent.
Cytonn, a Nairobi-based investment firm, noted that the Central Bank is trying to stabilise interest rates in the auction market by rejecting bids that it considers are above the market.
Last week, the CBK Governor Patrick Njoroge said the regulator would not hesitate to cancel auctions whose bids were outside the yield curve and turn down high bids by investors seeking to capitalise on the government’s high appetite for funds.
“Some of the prices are way outside the yield curve. There is a feeling that the government has insatiable need to borrow and that is why some of them are bidding on crazy rates.”