The Kenyan government, led by the Ministry of Treasury, announced on Thursday its intention to issue a Ksh70 billion infrastructure bond aimed at financing key development projects slated for the fiscal year 2023/24.

The Central Bank of Kenya (CBK) released a notice detailing the issuance of infrastructure bonds valued at Ksh70 billion ($429 million) with a maturity period of 8.5 years. The annual interest rate for the bond will be determined by market forces.

The auction, scheduled to run from January 24 to February 14, 2024, spans three weeks, and the bond is structured to pay interest semi-annually, commencing in August of the current year.

CBK clarified, "The Bond will be tax-free as is the case for Infrastructure Bonds as provided for under the Income Tax Act."

According to CBK's statement, the redemption plan involves the repayment of 20% of the principal by February 15, 2027, with the remaining unencumbered principal amount to be repaid by August 9, 2032. Redemption in full will be applicable for amounts up to Ksh 1.0 million per CSD account at amortization.

"Pledge contracts that have not been cancelled 5 days before the amortization date will be cancelled automatically at CBK. Thereafter, the pledged holdings will be transferred to the lender, and the amortization cash amount paid to the lender."

The Central Bank of Kenya will act as the paying agent, and the intermediaries in the bond issuance include Commercial Banks, Non-Bank Financial Institutions, Licensed Stock Brokers, and Licensed Investment Advisors.

CBK's statement indicated, "Licensed placing agents will be paid a commission at the rate of 0.15% of actual sales (at cost) net of 5% withholding tax."

The infrastructure bond is slated for listing on the Nairobi Securities Exchange, exclusively available to investors with active central securities depository (CSD) accounts with the Central Bank of Kenya.

However, the government issued a cautionary note, warning that defaulters may face suspension from subsequent investment in government securities. To date, the government has successfully raised Ksh397 billion through the sale of infrastructure bonds since January 2023, earmarked for funding diverse projects spanning road construction to water supply.