Kenya’s Development Bonds Lure Robust Demand in Confidence Test

(Bloomberg) -- Kenya’s sale of infrastructure bonds attracted strong demand in a key test of investors’ appetite after a wave of anti-government protests led authorities to scrap a crucial tax-raising plan.

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The country accepted bids totaling 88.7 billion shillings ($687 million) for securities maturing May 2030 and February 2040 on Wednesday, compared with the originally offered amount of 50 billion shillings, according to a statement from the Central Bank of Kenya. The overall demand was 126.3 billion shillings.

The sale came shortly after Moody’s Investors Service and Fitch Ratings cut Kenya’s credit score deeper into junk in response to authorities’ decision to abandon the revenue plan after protests killed scores of people across the country.

While the Finance Ministry says it’s trying to revive some of those tax measures, concerns over the budget deficit remain, driving up the premium investors demand to hold Kenyan assets. Infrastructure bonds — tax-free securities that were launched to finance development projects — are no exception, with yields on on the outstanding 2040 issue up 140 basis points since the protests erupted in mid-June.

The weighted average rate of accepted bids on the reopened 17-year bond was 17.73%, compared with 14.41% in April 2023 when it was last tapped.

Given lackluster demand at Kenya’s recent government bond auctions, Wednesday’s sale showed lasting appetite for securities that have generally been popular with investors. At the last auction of infrastructure bonds in February, the central bank accepted bids for three times the amount on offer.

The outcome may be also crucial for the shilling, which was boosted in February by the auction proceeds. The currency has strengthened about 3% since July 25 when the bond sale was announced, having weakened the month before as the protests raged.

(Updates with results of the auction starting in the first paragraph.)

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