If you are in the know in all matters finance, you probably are aware of the fact that the Central Bank on behalf of the Government of Kenya is inviting bids for a pioneer 30-year Savings and Development bond. This is the first of its kind in terms of time to maturity with the longest tenor currently available being a 25 year bond. To many a layman, 30 years may seem like a lifetime, but if you consider that in 1993, Walt Disney issued a 100 year bond, 30 years looks like a small blip.
Lest, I digress I want to get back to the crux of this post. I am saddened that the government has not marketed this bond as aggressively as it should have. It is a real shame, let me give a short discourse at why I am angered.
In 1941, the U.S government released the popular Series E bonds. These bonds were also known as war bonds as their main function was to bankroll the war effort. However, they dramatically had an effect on the U.S savings rate as it rose to a high of approximately 11% in the 1960's. Through then president Franklin Delano Roosevelt, the American government aggressively marketed this bonds. In fact, FDR was the first person to purchase a Series E bond. The marketing effort was so successful that Series E-bonds have come to take on an almost legendary status in American financial history. The marketing was precise and direct to the everyday Americans and the denominations at which the bonds sold at were accessible to the common citizen. The lowest denomination was 25$ and the highest being 10,000$. Incidentally the first Series E-bonds were also maturing in 30 years. Through these bonds, the government was not only able to raise money for the war, but the high savings rate laid the foundations for one of America's greatest economic periods; the 1960's to the late 1980's.
Now, the Kenyan government finds itself in the same situation as the American government did in 1941. Nevertheless, the key difference in our situation is that the government is not funding a war effort. However, the massive chasm is that G.O.K has done nothing in terms of publicity, unless I've been under a rock for the last few weeks, I have not seen any substantial T.V ad or any radio campaign urging Kenyans to buy into these bonds. If the government really intends to "boost national savings in line with their Vision 2030 campaign", I feel that they should at least try to sell the bonds to the general public.
The Savings and Development bond offers a great opportunity to save and invest. With a coupon rate of 12% paid semi-annually, an investment of 100,000Kshs would give you annual interest receipts of 12,000Kshs. This to me sounds like a good return given that it is virtually risk free. Allied to this, the fact that the secondary bond market in Kenya has vastly improved, one can sell the bond and recoup his initial investment or even at a profit. The latter is even more likely given the general direction of interest rates in the country. As most investment banks normally do, I give this bond a strong BUY recommendation.
Now that I have extolled it's virtues, the question then becomes; How can I buy one. Well, it is simple. First you need a CDSC (Central Depository and Settlement Corporation) account, this enables you to invest in financial assets such as bonds and stocks at the Nairobi Stock Exchange. To help you in this regard, the Central Bank has appointed five banks namely; Kenya Commercial Bank, National Bank, Equity Bank, Co-Operative Bank and the Kenya Post Office Savings Bank to be their agents. Therefore you can visit any of these banks and ask to open a CDS account. Once you have opened one, the banks will assist you with placing bids and therefore purchasing the bonds. Bids start with 50,000Kshs with denominations of 50,000Kshs upwards. Therefore you can not buy a bond for say 60,000Kshs. The banks will guide you as to how you will make the purchases and how you will receive the coupon payments.
My opinion is that this opportunity is extremely rare. Investors will be getting a guaranteed 12% annual payment and security of principal. Instead of speculating in real estate, the cautious investor should think hard about this chance. With investors still hurting from the bear market that started in 2008 and the illiquidity, risk and speculation witnessed in the real estate market, this bond is a genuine catch. I've done my little bit to advertise it and your comments and questions are welcome.
