How Much You’ll Earn from the 19-Year Infrastructure Bond with Ksh500K or Ksh1M [Plus 3 Rules Explained]

The Central Bank of Kenya reopened two infrastructure bonds (15-year and 19-year versions) and invited Kenyans to place bids as the government seeks to raise Ksh90 billion. The two bonds are open for bidding until August 13 this year.

The IFB/2018/015, which is running for 15 years, was first issued in 2018, and with the current reopening, it only has 7.5 years until maturity. The IFB1/2022/019 19-year bond, on the other hand, was first issued in 2022 and has 15.6 years to maturity.

Note: The amortisation is applied differently to investors who bid below Ksh1 million vs those who invest more than a million.

What is an Infrastructure Bond?: These are bonds issued by the government for specific infrastructural projects. Returns from infrastructure bonds are tax-exempt; hence, they attract many investors.

In the latest reopening, investors have an opportunity to bid competitively (if investing more than Ksh2 million) or non-competitively (less than Ksh2 million). Therefore, those bidding either Ksh1 million or Ksh500,000 must do so non-competitively, meaning that the current rate of 12.9650% applies to their investment.

Disclaimer: The weighted return rate may change slightly depending on the bids made, but for this article, we shall do the maths using the current rate on offer.

Read More: Here are the frequently asked questions about infrastructure bond and their answer

Rules Involved in the 19-Year Infrastructure Bond

Amortisation: This means that instead of paying investors back the principal in one lump sum at the end of the bond's tenor, the government pays portions of the bond back throughout its life.

In this infrastructure bond, the first and only remaining amortisation is set for February 9, 2032, when people who invested less than a million will receive their principal in full, while those with more than Ksh1 million will receive 50% of their principal.

Settlement Date: Once a bid has been accepted after the auction scheduled for August 13, all investors will be required to send the money by August 18, 2025, and anyone who defaults risks being suspended from investing in government securities.

Payment Key: After placing the bid, it is important to wait for a payment key and the amount payable before making the payments. All these details will be accessible via your CSD account on August 15.

“For example, if you bid Ksh50,000, you will get a payment key and the respective amount you will pay. Because the T-Bonds are paid through an auction, Your bid will be subjected to the price that will be determined by the auction. That is why you cannot pay in advance until CBK has communicated to you the amount you are required to pay,” an expert from CBK explained.

Maturity Date: Since the 19-year infrastructure bond was issued in 2022, it means that those investing now will enjoy returns for only 15.6 years. If you invest less than Ksh1 million, your returns will mature in 6 and a half years.

How Much Will You Make If You Invest Ksh500,000?

This will be based on the current interest rate of 12.9650%. If you invest Ksh500,000, your entire principal will be repaid in February 2032, after which you will cease enjoying the semiannual interest payments. Therefore, you will only earn interest for 78 months.

With the above interest rate, your investment will earn an annual interest of Ksh64,825, payable every 6 months at Ksh32,412. For the entire 78 months, you will have earned an interest of Ksh421,362. Therefore, your total interest plus the principal will amount to Ksh921,362.

How Much Will You Make If You Invest Ksh1 Million?

This will be based on the current interest rate of 12.9650%. If you invest Ksh1 million, your entire principal will earn you interest until February 2032, after which half of your principal (Ksh500,000 in this example) will be refunded, and the rest—in this case, Ksh500,000—will continue to accumulate interest until the bond's maturity in 2041.

Therefore, in the first 78 months, your Ksh1 million investment will earn an annual interest of Ksh129,650, payable every 6 months at Ksh64,825. This means that your total interest will be Ksh842,725. Added to half of your investment, you will have Ksh1.34 million.

Once half of your principal is paid back in February 2032, your remaining Ksh500,000 will earn interest for 9 years (108 months). At the above interest rate, you will earn an annual interest of Ksh64,825, payable every 6 months at Ksh32,412. By 2041, you will have earned a combined interest of Ksh583,425, which, when added to your remaining principal, will be Ksh1.08 million.

Therefore, at maturity, the investor will have a total of Ksh2.42 million—both principal and interest earned.

READ MORE: Here is a step-by-step process of how to place your bid on the reopened infrastructure bond through DhowCSD