Kenya's Central Bank Issues 18-Year Interest-Free Tax Bond to Raise Sh75 Billion

The Central Bank of Kenya (CBK) is seeking to raise Sh75 billion from the sale of an 18-year infrastructure bond on which investors will not pay taxes on interest received.

This is the second such paper following the February auction that raised Sh98.6 billion, surpassing the government fiscal agent's target of Sh75 billion. The bond came with a 12.96 percent tax-free interest, making it the most lucrative security the government has issued in recent years.

The new auction is also expected to record a high subscription due to the paper's tax-free status besides the CBK's tradition of paying relatively higher interest rates on such securities.

Interest on ordinary bonds is levied a withholding tax of between 10 and 15 percent, which significantly cuts the effective yield for investors.

The 18-year bond is on sale until June 7. The interest rate on the security will be determined by the market. Small investors will be repaid their principal earlier than those investing large sums.

The prospectus for the bond says 50 percent of the value of the bonds will be repaid on June 2, 2031, with investments of Sh1 million and below to be redeemed in full on that date.