The effect of regulation on infrastructure bonds uptake in Kenya

Abstract

In 2001, the Government of Kenya initiated reforms to restructure domestic debt market to ensure sustainable source of long term financing by both public and private sector through infrastructure bonds. In addition, the move was meant to inter alia reduce exposure to risks associated with short term bonds. These actions have over the time assisted in creating demand for long-term papers. Consequently, the outstanding stock of Treasury bonds rose from Ksh 80bn in June 2001 to Ksh 318bn by end December 2008. For instance in 2003-04, the coupon yield on a 10-year bond was 8.50% while Treasury bills rates averaged below 1.0%. This study focused on the effect of regulation and how it has influenced the investors‘ subscription to infrastructure bonds. This study took a causal research design to determine the causal relationship between one variable and another; in this case, the cause and effect relationship between regulation and infrastructure bond uptake. The study found that regulations regarding the minimum initial subscription amount of the infrastructure bonds was constant at Ksh100,000 with the subsequent units being subscription at Ksh50,000 (par value). The study concludes that tenure period of infrastructure bonds affects their uptake. Investors being rational are skeptical about postponing consumption of money for longer period of time and would rather invest in ‗short-term‘ periods. The study recommends that in order to increase bond subscription, the issuers should address the regulations governing the particular issue.