The Central Bank of Kenya, in its capacity as fiscal agent for the Republic of Kenya, has began the sale of a new 10-year fixed coupon (fixed payment) bond intended for budgetary support purposes. This seems to be in line with the KES 106 billion the government seeks to borrow from the local market in the 2012/2013 fiscal year.
The bond which went on sale on 13th June will remain available until the 19th of June 2012. As usual, the minimum amount one can invest in the bond is KES 50,000 and payments up to and below KES 1 million must be made by cash, banker’s cheque or RTGS and must reach the CBK by 2p.m (for cash and cheques) and by 3:30pm (for the RTGS) on Monday 25th June, 2012. Amounts exceeding KES 1 million must be made by RTGS.
The first coupon payment will be paid on the 24th of December this year, with payments coming in every six months after that date. The last payment will include your initial investment and the final coupon and will be made on the 13th of June, 2022.
Remember, interest earned on your bond is subject to a withholding tax of 15% and as a last resort, the CBK will reserve the right to adjust the interest upwards at 3% above the higher of the market yield at the time or the coupon rate on the bond. This is called rediscounting and it means that should the investor want to sell the bond within the 10-year period and is unable to do so through the secondary market, the CBK would pay the investor 3% above the higher of the prevailing market yield and the coupon rate as the price of the bond. This amount would be lower than the initial price of the bond that the investor paid, the logic being that the investor may have received coupons (the periodic payments that the investor receives).
Should you be an investor with free cash then this is a security to consider.