Frequently Asked Questions
What is a bond?
A bond is a formal contract to repay borrowed money with interest at fixed intervals. The issuer of the bond owes the holders a debt and pays interest and the principal at a later date.
How do I benefit from holding bonds in my portfolio?
Despite the potentially lower returns given by bonds, their safety and stability acts as a counter to the fluctuations common to share prices. It therefore makes sense for any investor to have at least part of their money invested in bonds.
Why are bonds called fixed income securities?
Bonds are also referred to as fixed income securities because the cash flow from them is fixed. Investors in bonds receive regular interest payments and their principal as agreed in the terms of the bond.
What is a PIBO?
PIBO stands for Public Infrustructure Bond Offer. It is the bonds equivalent of an IPO. In issuing bonds, firms may do so through the open public to all interested investors or through a private placement to select investors.
Who can participate in the Kengen PIBO?
The Kengen PIBO is open to all investors local, foreign, individual and institutional alike. The PIBO has created equal ground on the bonds market for individuals who previously had little participation in this segment of the Kenyan Capital Markets.
Do I need a lot of money to invest in the KenGen PIBO?
No. Individual investors need a minimum of only Kshs.100,000.00 (one hundred thousand) to be able to take part in the KenGen Public Infrastructure Bond Offer.
What is maturity of a bond?
A bond’s maturity refers to the time when the bond’s issuer will return the principal to the investors. There could be several maturities during the life of the bond or one maturity at the end of the term of the bond.
When and how will I receive my interest and principal on the KenGen Infrastructure Bond?
Interest payments will be made every 6 months (semi-annually). Principal redemptions will start being made after the second year. Principal redemptions will be evenly distributed and made together with all interest payments until the end of the term of the bond. All payments will be made directly into the investor’s bank accounts when they fall due.
What if I need my money back before the maturity of the bond?
If you require your principal before the end of the term of the bond, you will be able to trade your bond on the Nairobi Stock Exchange where you can sell all of it or part of it in portions of Kshs.50,000.00 (fifty thousand). You will be able to place your sell order with your Stockbroker or Custodian Bank.
Will I receive a certificate for proof of ownership?
The Kengen Infrastructure Bond will be the first bond to be deposited with investors’ accounts with the Central Depository and Settlement Corporation (CDSC). As such, your bond will appear in the same CDS account that you use to hold your shares. However, if you opt to hold the bond in certificate form, this will be possible though when you wish to sell, you will have to fill out an immobilization form.
Are my bonds safe in CDS?
Yes, your bonds are safe in your CDS account. The CDSC has security features in place to ensure the safety of your bonds. However, if you are not comfortable holding your bond in your current broker’s CDS account, you may opt to open a CDS account with another stockbroker or with a Custodian bank.
Will the interest fluctuate or will it be constant?
A bond whose interest rate stays the same over its lifespan is referred to as a fixed interest bond. A bond whose interest rate varies periodically over its lifespan is referred to as a floating interest bond. The interest on the Kengen Infrastructure Bonds will be fixed and will not fluctuate. Investors can therefore comfortably plan for their incomes from the bond without any uncertainty.
Is withholding tax going to be charged on my interest payments as is charged on dividends?
No. Ordinarily, interest earned on bonds is subject to 15% withholding tax for individuals and institutions. For an institution, the interest is further subject to corporate tax. However, the Kengen Infrastructure Bond is exempt from this as per the Income Tax Act 2006, Schedule 1, Part 1, Section 51. As an investor, you shall therefore not pay any tax on the interest earned from the Kengen Infrastructure Bond.
