Infrastructure Bond With Kenyan Diaspora Component
General Information Supplement 12 Year – Infrastructure Bond O er Prospectus Kes 20,000,000,000 due in Year 2023
The Budget for Financial Year (FY) 2011/12 speci ed that the Government will raise Kes 12 YEAR BOND 119.5bn through domestic borrowing. Out of this amount Kes 35.85bn will be raised through issuance of Infrastructure Bonds to fund speci c new and ongoing projects. The ISSUE NO. IFB1/2011/12 sectors of the economy highlighted in the Budget are; Roads: Kes. 7.36bn, Energy: Kes.18.78bn and Water: Kes.9.71bn. The continued emphasis on these three sectors is a TOTAL VALUE KSHS 20 BILLION testament to their crucial roles in supporting the growth of other economic sectors. Energy Sector continues to receive special attention given the Government’s VALUE DATE OCTOBER 3RD 2011 determination to explore new power sources such as geothermal and other forms of renewable energy.
The Republic of Kenya (“the Republic” or “the Issuer”) is o ering a Kshs 20,000,000,000 in an Infrastructure Bond Issue (“the Issue”), as a rst tranche to the total borrowing of Kshs. 35.85bn to be raised through Infrastructure Bonds. The proceeds of the Bond as has been the case with previously issued Infrastructure Bonds will be used to nance speci c projects in the Roads, Energy, and Water & Irrigation Sectors as opposed to the traditional objective of general budget support purposes, with no speci c project nancing being earmarked at the time of raising nance. The Bond will be open to all investors, but as a departure from normal Kenya Government fund-raising in the local capital markets, this o er will place special emphasis on getting participation from Kenyans in the Diaspora. Kenya has successfully issued Infrastructure Bonds since 2009 when the rst Bond was issued to raise Kes18.5bn to fund speci c projects in Transport, Energy, Water, and Irrigation Sectors. So far, four Infrastructure Bonds amounting to Kes. 82bn have been issued to fund the various projects.
The Republic of Kenya is cognizant of the need to get infrastructure nancing through the tapping of nance from the capital markets and has exceptionally structured this Infrastructure Bond with Kenyan Diaspora component. This is a re ection of the Government’s commitment to supporting economic growth through raising development funds as provided for under the provisions of the Internal Loans Act Cap 420 and also the Capital Markets Act Cap 485A. Repayment risk for the Bond is, therefore, identical to the repayment risk on the other Kenya Government Treasury Bonds.
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Infrastructure Bond 2 “The proceeds of the Bond as has been the case with previously issued Infrastructure Bonds will be used to nance speci c projects in the Roads, Energy, and Water & Irrigation Sectors as opposed to the traditional objective of general budget support purposes, with no speci c project nancing being earmarked at the time of raising nance.”
This Infrastructure Bond issue will be The Infrastructure Bond will be listed for denominated in Kenya Shillings (“Kes”) and trading on the Nairobi Stock Exchange (“NSE”), may be subject to reopening or reissue on a and the applicable approval for listing by the continuing basis. The maximum aggregate Capital Markets Authority (CMA) of Kenya has principal amount of all Bonds from time to been obtained. time is subject to review by the Issuer, in accordance and in compliance with the Targeted Projects Internal Loans Act Cap 420 and the Capital The preamble below summarises the Markets Act Cap 585A. The o er price, infrastructure sectors to be nanced by this aggregate principal amount, maturity and Bond. More detailed information on the interest payable in respect of this Bond, underlying projects is contained in the General have been determined by the Issuer and Information Supplement to this Prospectus. the Agent, at the time of issue, in To ensure success of this Issue, the accordance with prevailing market Government has identi ed projects whose conditions and as set out in the Financial implementation will open up areas of great Year 2011/12 Infrastructure Bond potential to the economy. The Issuer has Prospectus. provided incentives for potential investors which include: withholding tax exemption on Bonds issued under the Infrastructure interest income, amortisation commencing in nancing Programme will be classi ed as Year 4, tradability on the NSE and Infrastructure Bonds for tax purposes, and rediscounting at the CBK as a last resort. For will be tax exempt. This tax incentive this debut Issue, the Government has applies to this Bond o er. identi ed the following viable projects in the roads, energy and water & irrigation sectors to be nanced through the Kenya Diaspora In order to ease redemption pressure on Infrastructural Bond. the Issuer associated with bullet maturities, and avail an early exit window to investors; 1) Roads Sector – Kes. 4,163,919,000 redemption of the principal outstanding amount will be on an amortization basis at The size of Kenya’s Road Network is estimated the end of the fourth, eighth and a nal at 177,500km comprising 63,000km classi ed redemption at the end of the twelfth year, roads and 114,500km of unclassi ed roads. The in proportions speci ed in the Prospectus. poor state of the road infrastructure has been The interest payment will be semi-annual, identi ed as a major constraint to economic based on the original principal amount (or and social development. in case of amortization, on outstanding principal amounts, and NOT the original While there has been commendable work principal amount). The Infrastructure Bond done to repair these roads, the Government will be listed for trading on the Nairobi recognises that there is need for more Stock Exchange (“NSE”), and the applicable concerted e ort to build world-class road approval for listing by the Capital Markets network as engine of accelerated economic Authority (CMA) of Kenya has been growth. Accordingly, the government has been obtained. negotiating with development partners to obtain nancing for improving roads The Infrastructure Bond will be issued in a conditions in Class A, B and C categories. book entry registered form and held by the Consequently, Construction and civil works in a Registrar of National Debt (“the Registrar”) total of 57 districts across the country, overhaul and NOT in Bearer Certi cate form. The and refurbishment of civil works and capital Issuer shall, in the event of any material grants to Government Agencies and other changes a ecting the information set forth levels of Government will be funded to the in the Prospectus, issue a Public tune of Kes. 4,164mn. Supplement in electronic and/or print form which shall be of relevance and applicable conditions in Class A, B and C categories. in respect of all issues of this Bond after the Consequently, Construction and civil works in a date of issue of such information. This total of 57 districts across the country, overhaul supplement is to be read in conjunction and refurbishment of civil works and capital with the prospectus issued for this bond grants to Government Agencies and other over. levels of Government will be funded to the tune of Kes. 4,164mn.
Infrastructure Bond 3 “To ensure success of this Issue, the Government has identi ed projects whose implementation will open up areas of great potential to the economy. The Issuer has provided incentives for potential investors which include: withholding tax exemption on interest income, amortisation commencing in Year 4, tradability on the NSE and rediscounting at the CBK as a last resort.”
2) Energy Sector – Kes. 10,516,800,000 Additional Information:
Kenya currently su ers from an energy shortage: capacity is about 1,300 Additional Information to guide investors make informed MW, against rising demand of more than 2,000MW. Moreover, aging, decisions may be obtained from the Issuer (Director, Debt frequent breakdown and leakages mean that the installed capacity is Management Department at the Treasury –Nairobi Kenya) rarely fully available. The result of this supply/demand imbalance is an and/or the Agent (Director, Financial Markets Department, unreliable power supply, resulting in increased production costs for Central Bank of Kenya). They can be reached on the following Kenyan manufacturers’ vis-à-vis their competitors in other countries. The addresses: Government is committed to increased consumer connectivity, especially in rural areas in order to create a platform for rural economic The Central Bank Of Kenya development, including bre optic connectivity. P.O. Box 60000-00200, NAIROBI, KENYA, Tel: +254 20 286000 The Government, through the Kenya Electricity Generating Company Fax: +254 20 2863723 Limited (“KenGen”) and the Kenya Power & Lighting Company Limited (“KPLC”) plays a key role in developing the power sector. In addition to Email: [email protected] the e orts by these two companies, the Government is also charged Website: www.centralbank.go.ke with laying out the platform for these companies to generate and distribute power, especially where the components of this platform are OR not immediately commercially viable. It is this platform development that the Government seeks to raise Kes 10.517bn in the 2nd quarter of The Ministry of Finance FY-2011/12 to nance key projects in the energy sector. P O Box 30007 NAIROBI, KENYA The projects to be funded in this sector will include Geothermal and Tel: +254-020-2252299. Coal Resource Exploration and Development, power transmission, Rural Email: [email protected] Electri cation and Construction and Civil Works. Website: www.treasury.go.ke
3) Water, Sewerage & Irrigation sector – Kes. 5,319,281,000
Water sector continue to face numerous challenges both in urban and rural areas of this country. Major urban areas such as Nairobi, Mombasa, Kisumu, Nakuru, Eldoret and Nyeri are facing acute water and sewerage facilities shortage. Frequent water rationing and ine cient sewer systems facing most of the country’s urban dwellings continue to make lives of the country’s citizens di cult. With urban population rising rapidly, demand for these services is increasing much faster, thus requiring immediate intervention. In addition, lower farm acreage under irrigation with more frequent droughts continues to undermine increased agricultural production in many parts of the country.
As a starting point, the government allocated Kes. 1,241mn in the 2nd quarter of FY 2011-12 to nance construction of rural and urban water supplies in 283 districts and Kes. 114.8Mn in construction of sewerage systems in 31 districts to improve distribution network, support water storage facilities, upgrade water treatment works and repair/replace the pumping systems.
In an e ort to guarantee food security as a key ingredient of the economy, the government allocated Kes 3,616mn in the 2nd quarter of FY 2011-12 to fund irrigation infrastructure to spur agricultural sector growth. This will be used to fund the design, carry out feasibility studies, and construction of dams and irrigation projects. The Government also allocated Kes 468mn towards self-sustaining projects in drilling of boreholes in the ASAL areas and ood control management. All these projects will be funded by the issuance of Kshs. 35.85bn Infrastructure Bonds. The Bond will be issued in two tranches with this rst tranche seeking to raise Kshs. 20bn.
Infrastructure Bond 4 Kenyan Diaspora participation in the FY 2011/2012 Infrastructure Bonds The above Infrastructure Bonds for Financial Year 2011/2012 will be opened to Kenyan Citizens living abroad. They can participate as individuals or through their incorporated companies and other institutions with 100% Kenyan shareholding. The Investors will need to provide proof of their Kenyan Citizenship. Investors can participate directly or through commercial banks and other institutions licensed by the Capital Markets Authority to trade in Government Securities.
This is an initiative to open up Government securities market to Kenyans living abroad. It is therefore expected that these Kenyans will also be able to invest in other Government securities issued regularly
Requirements Kenyans in the Diaspora wishing to invest in Government of Kenya Securities will be required to ful l the following: Central Depository for Government Securities Accounts (CDS) All investors in Government of Kenya Securities will be required to open a CDS account with the Central Bank of Kenya (CBK). The Accounts will be opened by appearing in person or online through the Central Bank of Kenya Website. All the necessary documents, account opening forms, application forms, prospectus, information supplement and others relevant materials will be availed in the CBK Website. The con rmation of the identi cation and account documents will involve certi cation by the investor’s commercial bank through countersigning and SWIFT con rmations. Central Bank of Kenya reserves the right to con rm the authenticity of the availed documents from the relevant issuing authorities.
Requirements for opening and/or changing details for the CDS accounts for corporate entities (these include companies and other corporate entities established by statutes). All authorized signatories will be required to complete a mandate card which in this case is the specimen signature mandate card (the card). The cards should be completed in block letters, neatly and clearly inscribed and names must be written in the order that they appear on the identi cation document. Any alterations/errors must be signed against and the card must not be dis gured in anyway. Authorized signatories are required to sign the card in the presence of their commercial bank’s o cial, a designated CBK o cer or an authorized CBK agent. The investor’s commercial bank/ nancial institution must be licensed by the Central Bank of Kenya or the licensing authority in the country of operation. On completion, the card(s) will be submitted to CBK online or in hard copy together with one certi ed and recent colour passport size photograph. The certi cation to be done by the investor’s commercial bank, a designated CBK o cer or an authorized agent. Original or certi ed copies of the following documents for certi cation. (Note that the copies will be retained by the Bank). i. Certi cate of incorporation and/or valid license to operate. ii. Board resolution appointing authorized signatories. iii. National Identity cards and/or valid Kenyan passport. Two signatories of the investor’s bankers, whether a commercial bank or nancial institution, must sign and stamp the card on the space provided, con rming the bank account details. Payments will be made to the bank account speci ed in the mandate card. At least two signatories should sign for any transactions involving Government securities for corporate entities. On receipt of all the requirements, CDS account applications will be processed and the details con rmed accordingly. Change of address may be advised through a letter signed by the signatories to the account as per the mandates.
Infrastructure Bond 5 Kenyan Diaspora participation in the FY 2011/2012 Infrastructure Bonds Requirements for Opening or Changing details for Individuals/Joint CDS accounts Individuals may hold CDS accounts singly or jointly. Each individual CDS account holder/applicant must complete the CDS accounts specimen signature mandate card (the card), The card(s) should be completed in block letters, neatly and clearly. Names must be written in the order that they appear on the identi cation document. Any alterations/errors must be signed against and must not be dis gured in anyway. Signatories to the CDS account will be required to sign the card in the presence of a designated o cial of the investor’s commercial bank, CBK o cer or any CBK authorized agent. On completion the cards will be submitted to CBK together with: i. One certi ed and recent colour passport size photograph. ii. The original or certi ed copy of the National Identity card or valid Kenyan Passport. Two signatories of the bankers, whether a commercial bank or nancial institution, must sign and stamp the card on the space provided, con rming the bank account details. Payments will be made to the bank account speci ed in the mandate card. Change of address may be advised through a letter signed by signatories as per the mandate.
Payments: O er Amount, Interest and Redemption O er, interest and redemption payments will be made through the Investor’s local or overseas commercial bank. Investors remitting funds from abroad will make payments directly to the Central Bank of Kenya through the CBK’s correspondent banks abroad; likewise, interest payments and redemptions will be made through CBK’s correspondent banks abroad. The conversion rate applicable on any transaction will be the daily CBK Mean Rate for the day of the transaction, in the case of the o er payments, the applicable rate is for the value date. These rates are published in the CBK Website. The transactions and variations costs arising from payments process and exchange rates will be borne by the investor.
Central Bank of Kenya correspondent Banks BANK NAME BIC CODE PHYSICAL ADDRESS ACCOUNT NO.
Federal Reserve FRNYUS33 Federal Reserve Bank of NY, 33 Liberty St, Bank New-York New York, NY 10045-0001 021084571 KENYA USA Citibank NA. New- CITIUS33 111 Wall Street, FL 19, Zone 1, New York York, 36053278 NY 10043 USA JPMorgan Chase CHASUS33 4 New York Plaza 17TH Floor Bank New-York NEW YORK, New York 10004-2413 0011542115 (JPCHASE) USA
Bank of England BKENGB2L Bank of England GBIIBKEN London Threadneedle Street 1000004181007 London EC2R 8AH Rediscounting The Central Bank of Kenya will rediscount the Bonds as a last resort at 3% above the prevailing market yield or coupon which- ever is higher, upon written con rmation to do so from Nairobi Stock Exchange. In the case of the Diaspora investors, the request for rediscounting should be issued by the investor upon con rmation of the instructions by the Central Bank of Kenya. Rediscount proceeds will be paid through the investor’s Bank account as provided in the CDS account records.
Infrastructure Bond 6