Treasury floats Sh50b bonds to support budget amid low collections

Tuesday, May 5th, 2020 00:00 |

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Zachary Ochuodho @zachuodho

Central Bank of Kenya (CBK) has opened the sale of a 5-year bond to raise Sh50 billion whose proceeds the National Treasury says will be used to support its 2019/20 budget.

 The bond with a coupon of 15 per cent started selling on April 29, 2020, with auction set to close on May 11, according to the prospectus the CBK released.

The redemption date is May 5, 2025. Investors are allowed to lock in between a minimum of Sh50, 000 and maximum of Sh20 million.

 According to CBK, the proceeds will be used to support the 2019/20 budget. The offer comes at a time market has been seen undersubscribed with the BID FXD1/2020/5 ranging between 11.40 per cent and 11.50 per cent levels.

 The opening of the bond comes at a time when the Kenya Revenue Authority reported that they had recorded a drop in tax collections in the first two months of 2020 mainly due to the subdued business activity amid fears the coronavirus pandemic.

 Treasury says the tax collections have reduced from Sh219.56 billion to Sh216.06 billion in January and February.

The drop reflects lower collections from businesses struggling with lower sales and workers plagued by stagnant pay.

 Treasury, Cabinet Secretary, Ukur Yatani has said he expects the under-performance in revenue collection to deepen in the three months to June following the impact of corona on the economy.

 Coronavirus pandemic has impacted negatively on both imports as well as domestic consumptions have slowed down as a result of the impact of the virus, hitting taxes. 

Churchill Ogutu, an analyst at Genghis, said the bond proceeds is expected to support the budget in the remainder of the fiscal year.

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