Infrastructure Bond With Kenyan Diaspora Component General Information Supplement 12 Year – Infrastructure Bond Oer Prospectus Kes 20,000,000,000 due in Year 2023 The Budget for Financial Year (FY) 2011/12 specied 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 specic 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 oering 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 specic projects in the Roads, Energy, and Water & Irrigation Sectors as opposed to the traditional objective of general budget support purposes, with no specic 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 oer 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 specic 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 reection 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. Contents Infrastructure Bond 2 “The proceeds of the Bond as has been the case with previously issued Infrastructure Bonds will be used to nance specic projects in the Roads, Energy, and Water & Irrigation Sectors as opposed to the traditional objective of general budget support purposes, with no specic 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 oer 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 identied 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 classied 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 oer. identied 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 classied redemption at the end of the twelfth year, roads and 114,500km of unclassied roads. The in proportions specied in the Prospectus. poor state of the road infrastructure has been The interest payment will be semi-annual, identied 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 eort 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 Certicate form. The and refurbishment of civil works and capital Issuer shall, in the event of any material grants to Government Agencies and other changes aecting 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 identied 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 suers 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 eorts 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] Electrication 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.