Government targets Shs990b from domestic investors as BoU opens Treasury bond auction

KAMPALA. The Bank of Uganda is seeking to raise Shs990 billion through three Treasury bond issues as government continues to tap the domestic debt market to finance its budgetary needs.

The central bank will offer a three-year, 10-year and 20-year Treasury bond at an auction scheduled for Wednesday, October 7, according to an auction notice issued on September 24.

The three-year bond, carrying a coupon rate of 12 per cent and maturing on September 6, 2029, has an offering amount of Shs230 billion.

The 10-year bond, with a 16 per cent coupon rate and maturing on May 14, 2037, has an offering amount of Shs330 billion, while the 20-year bond carries a 15 per cent coupon rate and matures on August 16, 2046. It has an offering amount of Shs430 billion.

The auction is part of government’s regular borrowing through Treasury securities, with the bonds providing investors with an avenue to lend to government in exchange for periodic interest payments and repayment of principal at maturity.

The settlement date for the successful bids will be October 8, a day after the auction.

The three securities have different withholding tax rates. Investors in the three-year bond will be subject to a 20 per cent withholding tax, while the 10-year and 20-year bonds carry a 10 per cent rate.

Banks to submit bids

Primary dealer banks and other commercial banks are required to submit competitive and non-competitive bids through the Central Securities Depository by 10am on October 7.

The minimum competitive bid is Shs200.1 million, while the minimum non-competitive bid is Shs100,000.

Only primary dealer banks are allowed to submit competitive bids. The current primary dealers are Absa Bank, Citi Bank, Centenary Bank, DFCU Bank, Housing Finance Bank, Stanbic Bank and Standard Chartered Bank.
The central bank said all successful competitive and non-competitive bids will be allocated at a single price, based on the lowest auction price per Shs100, corresponding to the highest accepted auction yield.

BoU, however, retained the discretion to increase or reduce the amount offered and to accept or reject applications, either wholly or partly.

The auction comes as government continues to rely on domestic borrowing alongside tax and other revenues to finance public expenditure.

The three bonds also offer investors different maturity profiles, allowing them to choose between shorter-term exposure through the three-year security and longer-term investment through the 10-year and 20-year instruments.