CBK Reopens Three Tax-Free Infrastructure Bonds. Here’s What Investors Need to Know.

The Central Bank of Kenya has reopened three tax free infrastructure bonds as the government seeks to raise Sh150 billion for infrastructure projects. The offer opened on July 30 and will close at 10am on August 12. It is a reopening, meaning the Treasury is selling additional amounts of bonds originally issued in 2019 and 2021 rather than creating three new securities.

Three choices for investors
Investors can choose from three bonds with different repayment periods. IFB1/2019/016 has 9.3 years remaining and carries a coupon rate of 11.75%, while IFB1/2021/018 has 12.7 years remaining and pays 12.667%. The longest, IFB1/2021/021, has 16.2 years left to maturity and carries a coupon rate of 12.737%.
The coupon rate determines the interest paid on the bond’s outstanding principal. However, the investor’s yield also depends on the price paid at auction: buying below face value raises the yield, while buying above face value lowers it. Interest earned from all three bonds is exempt from withholding tax.

Bidding and settlement
Investors can participate through either a non-competitive or competitive bid. Under the non-competitive option, investors state how much they want to invest and accept the average yield determined at the auction. These bids range from Sh50,000 to Sh50 million.
Competitive bidders choose the yield they are willing to accept and must submit at least Sh2 million per CSD account for each bond. Their bids may be rejected if the requested yield is above the level CBK is prepared to accept.
The auction will be held on August 12, with successful investors required to settle their purchases on August 17. The bonds will begin trading on the Nairobi Securities Exchange on the same day.

How the principal will be repaid
All three bonds use a 50% amortisation structure, meaning investors will receive half of their principal before maturity and the remaining half when the bond matures.
IFB1/2019/016 will repay half in October 2030 and the balance in October 2035. IFB1/2021/018 will repay half in April 2030 and the balance in March 2039, while IFB1/2021/021 will repay half in September 2031 and the balance in August 2042.

Selling before maturity
Investors do not have to keep the bonds until their final maturity dates. Once secondary trading begins on the Nairobi Securities Exchange on August 17, holders may sell them at the prevailing market price, which could be higher or lower than the price originally paid. The bonds may also be used as collateral when seeking loans from regulated financial institutions.