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2nd Government Infrastructure Bond
Rank: Member Joined: 8/8/2009 Posts: 170
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Looking to raise Ksh 18,500MM to 'build dams' among other noble causes. Tenor: 12yrs Min Amt: 100K Coupon : 12.00% s.a Tax: Tax Exempt Redemption November 23rd,2015 – 49% of outstanding principal amount November 19th,2018 – 53% of outstanding principal amount November 15th,2021 – Final redemption of all outstanding amounts Bids Closure: Tuesday 2.00p.m,November 24,2009 2ndary Tradng: Multiples of Ksh 50,000 from December 1st 2009* *No mention of whether bond will be on ATS http://www.centralbank.g...strucuteBond/2ndIFB.pdf It often happens that a TRADER carries out a deep and complicated calculation,but fails to spot something elementary right at the first move! drake attached the following image(s):  CBK30.jpg (9kb) downloaded 0 time(s).
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Rank: Elder Joined: 2/26/2008 Posts: 4,449
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Thanks for the info.
The interest on this bond is 12.00% p.a. payable semi-annually on outstanding principal amount.
As I have successfully done before as a young investor not a pensioner,willing to take on more risk while seeking the best return on my investment,I will 'bet' against this bond by investing in select equities.
I bet that come 29/11/2010 when the second semi-annual payment for 2010 will be done,I will have made a notably higher return by investing today in SCOM,HFCK or KQ. You could do your own research for your preferred select stocks here. These returns will be tremendously higher if I choose to hold out to the lifetime of the bond.
Who said investing is boring? About the bond guaranteed return,how about use of a stop-loss in the equity counter when in a profit position?...think about it
My 2 Cents.
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Rank: Member Joined: 8/29/2008 Posts: 571
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People who invest in bonds invest for income.Those who invest in equities invest for capital gains.Big difference in attitude.Its like one is dairy farmer and the other cattle/beef farmer.The daily farmer has consistent income.Cattle/beef farmer waits for his bulls to mature and slaughters them for capital gains.ECSTACY,you can't convince a dairy farmer to change to beef farming.So,let the bond investors do their thing.
Ali Baba
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Rank: Elder Joined: 2/26/2008 Posts: 4,449
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well...my guy,try look at it this way...going by thread updates,there are many on SK who simply want to make money but have adopted a 'don't try to beat the trend' attitude unless... that is your typical nonchalant young-middle aged SK audience on herd mentality reading this thread not some white haired rich wazee farmers surfing SK...
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Rank: Member Joined: 8/8/2009 Posts: 170
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@ all True,but portfolio theory stresses the need to invest in both Equities and Fixed Income securities/products......BUT to vary your asset allocations accordingly,vis-à-vis what stage of cycle you're in,for an optimal risk-return relationship. @ Ali-Baba Capital gains from bonds are not entirely unheard of. It often happens that a TRADER carries out a deep and complicated calculation,but fails to spot something elementary right at the first move!
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Rank: Member Joined: 8/29/2008 Posts: 571
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Drake,that's correct. Yes,but mostly bond investors do it for income.However,interest rates determine the price at which it maybe re-sold at the stock exchange.
ECSTACY,Most bond investors also invest in equites.Myself,I do both.
Ali Baba
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Rank: Chief Joined: 1/3/2007 Posts: 18,060 Location: Nairobi
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Average rate in 12.57% (tax-exempt)... Oversubscribed... Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Elder Joined: 7/26/2007 Posts: 6,514
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This bond received 43B (YES, 43B) worth of bids!!!!! That is absolutely crazy money. But, this tells us 2 things: 1. GOK is paying over the top interest 2. Banks have started the old 90s games, put money in bonds/bills and stop lending. This is bad for the economy. Business opportunities are like buses,there's always another one coming
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Rank: Chief Joined: 1/3/2007 Posts: 18,060 Location: Nairobi
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@kularaha - The bids were not backed by cash but guarantees so there is an element of 'over-applying'. During safcon, many investors went & got bank guarantees for 100% more than the cash they had... so as to get a larger allocation... (Many were chomeka'd is a different story) Even for bonds... what you do is get a bank guarantee for MORE than you actually want/can buy e.g. guarantee for 10mn lakini you have only 5mn in cash. Of course, if you are allocated the full 10mn... The bank has to pay up the difference & then it will thwack you! LOL... Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Chief Joined: 1/3/2007 Posts: 18,060 Location: Nairobi
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A huge portion of the applications are from Insurance Firms. Strong ones can easily (& cheaply) get bank guarantees. Some insurance firms have banks as hubbies: CFC Life & Heritage = CFC Stanbic Bank General Accident = I&M Bank (Siblings) ICEA = 'Come We Stay' with NIC Bank (ndegwas) Jubilee = Diamond Trust (Aga Khan's babies) Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Veteran Joined: 11/21/2006 Posts: 1,590
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The famous crowding out effect on private sector at work. I bet you Std Chartered must be laughing all the way to the bank as it were Sehemu ndio nyumba
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Rank: Elder Joined: 7/26/2007 Posts: 6,514
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As at September 56% of Kenya's doemstic debt (t bills, bonds etc) was held by banks. If we go by this ratio, 24B of this bond's bids were by banks. That IS crowding our, my friend, no matter what you say about ins cos and double bidding. Business opportunities are like buses,there's always another one coming
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Rank: Chief Joined: 1/3/2007 Posts: 18,060 Location: Nairobi
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@mainat - Nothing like this as an example of crowding out private borrowers! Furthermore, the Bond is tax-free so an added 'disincentive' to invest in private firms. Uchumi has been trying to sell a debenture. To match GoK on post-tax basis, it has to offer 18%. That is crazy! Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Chief Joined: 1/3/2007 Posts: 18,060 Location: Nairobi
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@kularaha - CBK has been trying to avoid borrowing from banks for the Infrastructure Bonds. I do not know if it is working. At a post-tax return of 12.57%... why even lend to customers who may default? And need monitoring. And need branches. And need services. And may be late in paying. I believe the maximum allocation to a single institution is KES 10mn (if there are sufficient bidders at attractive prices). Perhaps the limit is higher for larger bonds. Insurance firms find the these Bonds (since they have partial redemptions) particularly attractive. High interest rates. Tax exempt. Partial redemptions though the life of the Bond. Low risk. Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Elder Joined: 7/26/2007 Posts: 6,514
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VVS, there is no max limit for any bond. What I'm saying is if banks start heading to these bonds in numbers, who will lend to business?? Business opportunities are like buses,there's always another one coming
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Rank: Member Joined: 1/9/2008 Posts: 537
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kularaha has a point...luk at the balance sheets of bbk and scnk...both banks have markedly upped their stakes in gvt securities...aidan mohamed is on record as sayin that bbk wud reduce lending and invest in treasuries...private sector definately gettin crowded out...wats worse is that thereis little proof that these funds ever get used for infrastructure....
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Rank: Elder Joined: 6/2/2008 Posts: 1,438
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Indeed. On the other hand as long as these bonds continue to pay such "high" level of interest, Governor Ndung'u can continue to shout himself hoarse for banks to lower their lending rates with ZERO effect.
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Rank: Elder Joined: 6/2/2008 Posts: 1,438
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One point that we seem to be losing in the over subscription levels of the most recent bond issues is that it shows that there is serious money sitting on the sidelines looking for a home. While this is an indicator towards the level of risk aversion w.r.t equities, it could also be a pointer that this money could find its way into the equities market. Now, what's gonna trigger that?
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Rank: Member Joined: 9/2/2006 Posts: 121
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@ Kula raha - there is a limit of Kshs 10 million per applicant.Its something that has been there for a while.
Have you all considered the fact that also foreign investors (with their so called hot money) had also applied for the bond? I dont think the participation by local banks has ever caused the yield to drop by a whopping 100 bps!
Am sure it will be the same with the third bond next year in February.
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Rank: Veteran Joined: 11/29/2007 Posts: 948
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@ Kularaha. you're right. Though there are some quarters claiming that lending to private sector hasn't really been affected. i doubt. The bond has a coupon of 12% down from 12.5% on the first bond with similar features. with KNBS coming up with the 'correct' method of calculating inflation figures the CBK should revise these coupons downwards....will this trigger a redirection of funds to the equities market? @scooby, this bond had no limit for application and in any case the limit is tagged on non competitive bids only for the kawaida bonds.
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