12 YEAR GOVERNMENT OF KENYA INFRASTRUCTURE BOND ISSUE NO.

IFB1/2013/12 The Central Bank of Kenya in its capacity as fiscal agent to the Government of Kenya and in line with the commitment to ensure access to financial products by all investors, is offering a 12 year Infrastructure Bond to fund targeted Infrastructure projects in sectors identified in the Budget. The sectors of the economy to be funding are; Transport: Ksh. 14.28 bn, Energy: Ksh. 11.63bn and Water: Ksh 10.11bn. This will be continuation of the sectoral funding programme on these three sectors that has been the focal point in infrastructure development in the past couple of years. Infrastructure Bonds have been successfully issued in Kenya since 2009 when the first bond was issued to raise Ksh.18.5bn, to fund specific projects in Roads, Energy, Water and Irrigation sectors. The amount earmarked under the FY 2013/14 Infrastructure Bond issuance will be raised in two tranches. The first trance of Ksh.20bn is on sale up to the end of September 2103, while the second tranche will be issued at a later date during the financial year. The Bond is tax exempt and has an attractive coupon rate of 11% per annum, payable semi-annually. The Bond will be amortized in the 4th, 8th and 12th year to provide investors with a flexible redemption mechanism. In addition, the holders of the bond may use it to collaterize credit facilities with any financial institution within Kenya. 1. Background

Budget for Financial Year (FY) 2013/2014 specified the Government will raise Kes.106.7 bn through domestic borrowing. Out of this amount Kes106.7bn through domestic borrowing. Out of this amount Kes 36bn will be raised through issuance of Infrastructure Bonds to fund specific new and ongoing projects. The targeted sectors of the economy as highlighted in the Budget are; Transport: Kes 14.28bn, Energy: Kes. 11.63bn and Water: Kes 10.11bn. The continued emphasis on these three sectors is a demonstration of their crucial roles in supporting the growth of other economic sectors. Transport sector continues to receive special attention because the Government is focused to improve accessibility with the country through road and rail networks and in the region, through the LAPSSET (Lamu Port South Sudan-Ethiopia Transport Corridor). The energy sector, there is determination to explore new power sources such as geothermal and other forms of renewable energy. The Republic of Kenya (the Republic or the Issuer is offering Kes 20,000.000,000 in an Infrastructure Bond Issue (the Issue), as the first tranche to the total borrowing of Kes. 36bn to be raised through Infrastructure Bonds. The proceeds of the Bonds, as has been the case with previously issued Infrastructure Bonds will be used to finance specific projects in the Roads, Energy, and Water & Irrigation sectors as opposed to the traditional objective of general budget support purposes which did not target specific project financing. Kenya has successfully issued Infrastructure Bonds since 2009 when

the first bond raised Kes18.5bn to fund specific projects in Transport, Energy, Water, and Irrigation sectors. So far, five Infrastructure bonds amounting to Kes 130.85bn have been issued to fund various projects under these sectors. The issuance of this bond is reflection of the Governments commitment to supporting economic growth through bridging funding gaps in development expenditure budget in line with the provisions of the Public Finance Management Act and the Capital Markets Act. This Infrastructure Bond issue will be denominated in Kenya Shillings (Kes) and may be subject to reopening or reissue in the future during its life. The maximum aggregate principal amount of all bonds from time to time is subject to review by the issuer, in accordance and in compliance with the aforementioned legislation. The offer price, aggregate principal amount, maturity and interest payable in respect of this bond, have been determined at the time of issue, in accordance with prevailing market conditions and as set out in the Financial Year 2013/2014 Infrastructure Bond Prospectus. Interest payment will be semi-annual, based on the principal amount (in case of amortization, based on outstanding principal amount, and NOT the original principal amount). The Infrastructure Bond will be listed for trading on the Nairobi Stock Exchange (NSE), and the applicable approval for listing by the Capital Markets Authority (CMA) of Kenya has been obtained. The Infrastructure Bond will be issued in a book entry registered form and held by the Registrar of National Debt (the Registrar) and NOT in Bearer Certificate form. This prospectus is to be read in conjunction with the information supplement incorporated herein whether by reference or otherwise and should be read and understood on the basis that such other documents are incorporated in and form part of this Prospectus. 2. Targeted Projects

The following subsections summarizes the infrastructure sectors to be financed by the proceeds of this Bond. To ensure the success of this Issue, the Government has identified projects whose implementation will open up areas of great potential to the economy. The Government has identified the following viable projects in the transport, energy and water sectors to be financed through this Infrastructure Bond. 2.1. Transport Sector Kes.14,278,407,144

The size of Kenyas Road Network is estimated at 177,500km comprising 63,000km classified roads and 114,500km of unclassified roads. Poor state of the road infrastructure has been identified as a major constraint to economic and social development.

While there has been commendable work done to repair these roads, the Government recognizes the fact that there is a need for more concerted effort to build world-class road network as an engine of accelerated financing for improving roads conditions in Class A, B and C categories. To this end, Kes 14.28bn will be used to fund construction and civil works across the country, overhaul and refurbishment of civil works and capital grants to Government Agencies as well as other levels of Government. 2.2. Energy Sector Kes.11,633,422,875

Kenya currently suffers from an energy capacity shortage with rising demand. Moreover, aging and frequent breakdown of electricity infrastructure as well as leakages imply that he installed capacity is rarely fully available. The result of this supply/demand imbalance is an unreliably power supply, resulting in increased production costs for Kenyan manufacturers vis--vis their competitors in other countries. The Government is committed to increase consumer connectivity, especially in rural areas in order to create a platform for rural economic development, including fibre optic internet connectivity and ICT initiatives. The Government through the Kenya Electricity Generating Company Limited (KenGen) and the Kenya Power & Lighting Company Limited (KPLC) plays a key role in developing the power sector. In addition to the efforts by these two companies, the Government is also charged with laying out the platform for these companies to generate and distribute power, especially where the components of this platform are not immediately commercially viable. The projects to be funded to the tune of Kes. 11.63bn in this sector will include Geothermal and Coal Resource Exploration and Development, power transmission, Rural Electrification and Construction and Civil Works. 2.3 Water, Sewerage & Irrigation sector Kes. 10,113,617,758

Water resource continues to face numerous challenges both in urban and rural areas of this country. Major urban areas such as Nairobi, Mombasa, Kisumu, Nakuru, Eldoret and Nyeri face constraints in provision of water and sewerage services. Frequent water rationing and inefficient sewerage systems facing most of the countrys urban dwellings continue to make lives of the citizens difficult. With urban population rising rapidly, demand for these services is increasing much faster, thus requiring immediate intervention. In addition, lower far acreage under irrigation with more frequent droughts continues to undermine increased agricultural production in many parts of the country. The government seeks to raise Kes. 10.112bn to finance construction of rural and urban water supplies, sewerage systems, improve water distribution network, support water storage facilities, upgrade water treatment works and repair/replace the pumping systems across the country. The funds will also be used to fund irrigation infrastructure to spur agricultural growth and guarantee food security as a key ingredient of economic growth.

Expenditure areas here shall include feasibility studies, designs, and construction of dams and irrigation systems. All above projects under the three sectors will be funded by the issuance of Kes 36bn Infrastructure Bonds in 2013-2014 financial year. The Bond will be issued in two tranches which could be reopened or/and issued on tap in the event of under subscriptions. 2.4 Incentives

The Issuer has incorporated incentives for potential investors which include: exemption of withholding tax on interest income; phase amortization commencing in Year 4; trading at the NSE and rediscounting at the CBK as a last resort. Bonds issued under the Infrastructure financing Programme are classified as Infrastructure Bond for tax purposes, and are exempt from taxation. Tax exemption incentive applies to this bond offer. In order to ease redemption pressure on the Issuer associated with bullet maturities, and avail an early exit window to investors; redemption of the principal outstanding will be subject to phased amortization at the end of the fourth, eighth and twelfth year, in proportions specified in the Prospectus. Extract of the Bond Prospectus Issuer: Republic of Kenya Amount: Kes. 20,000 mn Purpose: For partial funding of Specific Infrastructure Projects in the following sectors; Transport, Kes.14.28bn, Energy Kes.11.63 bn and Water Kes. 10.11bn. Minimum Amount: Kes 100,000 an in multiples of Kes.50,000 thereafter Tenure: 12 years with two amortizations Coupon (Interest Rate): 11% per annum payable semi annually on outstanding principal amount Period of Sale: September 9, 2013 to September 24, 2013 Value Date: Monday, September 30, 2013 Closing Date: 2:00 pm Tuesday, September 24th 2013 Auction Date: Wednesday, September 25, 2013 Auction Method: Multiple Price Auction Issuance Method: Open Public Auciton Results Dissemination: Investors should obtain details of amounts payable for successful trade from Central Bank of Kenya on the next working day after the auction. The information may be obtained by direct contact with CBK or be sought online for Investors in the Diaspora Reopening: The bond may be reopened at a future date. Defaulters: Investors, who fail to pay for successful bids, may be suspended from investing in subsequent Kenya Government securities offers.

Placing Agents: Commercial Banks, Non-Bank Financial Institutions, Licensed Stockbrokers, Investment Banks and Investment Advisers licensed and operating in Kenya Independent Advice: The investing public is advised to seek independent investment advice before applying for the Infrastructure Bond. Commission: Authorized placing agents will be paid a commission of 0.15% of actual sales net of 5% withholding tax. Interest Payment Date: 31-Mar-14, 29-Sep-14, 30-Mar-15, 28-Sep-15, 28-Mar16, 26-Sep-16, 27-Mar-17, 25-Sep-17, 25-Sep-17, 26-Mar-18, 24-Sep-18, 25Mar-19, 23-Sep-19, 23-Mar-20, 21-Sep-20, 22-Mar-21, 20-Sep-21, 21-Mar-22, 19-Sep-22, 20-Mar-23, 18-Sep-23, 19-Mar-24, 16-Sep-24, 17-Mar-25, 15-Sep-25, 15-Sep-25. Currency: The Infrastructure Bond will be denominated in Kenya shilling Redemption Structure: The Bonds outstanding principal amounts will be amortized in as follows: 28.74% of outstanding amount in 4th Year on September 25, 2017. 44/896% of outstanding amount in the 8th Year on September 20, 2021, and the balance in the fiscal year, the 12th Year on September 15, 2025. Classification: Non-benchmark bond Registrar: National Debt Office, Central Bank of Kenya Taxation: The bond will be tax free as is the case for all Infrastructure Bonds as provided for under the Income Tax Act. Issuing and Paying Agent: The Central Bank of Kenya will receive and/or make all payments related to issuance, interest and principal on behalf of the Issuer Non-Competitive Bids: Maximum Kes.20mn per investor Secondary Trading: The Bond will be listed at the Nairobi Securities Exchange (NSE) and will trade in multiples of Kes. 50,000 Rediscounting: Investors wishing to redeem their holdings before maturity date and are unable to sell the same at the NSE will be allowed to rediscount the bond at the Central Bank of Kenya, upon written confirmation to that effect from the NSE. Rediscount price will be at the rate of 3% above the higher coupons or prevailing market yield on the bond. Collateral: Holders of this Infrastructure bond may pledge it as collateral for credit facilities to a financial institution licensed and operating in Kenya. Eligibility: Only CDS Account holders with updated mandates. All investors will therefore be required to open Government securities CDS account with the Central Bank of Kenya. All the necessary documents for CDS account opening, application forms, prospectus and other relevant information are available at the CBK website: www.centralbank.go.ke Right to accept Bids: The Central Bank of Kenya reserves the right to accept bids in full or part thereof or reject them in total without giving any reason.

Additional Information: Additional information to guide investors make informed decisions may be obtained from the Issuer (Director, Debt Management Department at the

Treasury Nairobi, Kenya) and/or the Agent (Director, Financial Markets Department, Central Bank of Kenya). They can be reached on the following addresses. 1. The Ministry of Finance P.O. Box 30007 NAIROBI, KENYA Tel: 254-020-2252299 Email: dmd@treasury.go.ke Website: www.treasury.go.ke 2. The Central Bank of Kenya P.O. Box 60000-00200 NAIROBI, KENYA Tel: 254-20-286000 Fax: 254-20-2863723 Email: ndo@centralbank.go.ke Website: www.centralbank.go.ke

3. Participation Who can invest in this Bond? Any individual or institutional investor with a CDS account at the Central Bank of Kenya can invest in the bond or any other Kenyan Government Securities. Central Depository for Government Securities Accounts (CDS) All investors in Government of Kenya Securities will be required to open a CDS account with the Central Bank of Kenya (CBK). The Accounts are opened by appearing in person for residents or online through the Central Bank of Kenya Website for non-residents. All the necessary documents, account opening forms, application forms, prospectus, information supplement and other relevant materials are available on the CBK Website. For online applications, identification and account documents for investors MUST be certified by investors commercial bank through countersigning and SWIFT confirmations. Central Bank of Kenya reserves the right to confirm the authenticity of these documents from relevant issuing authorities. Requirements for opening and/or changing details for the CDS accounts for corporate entities (these include companies and other corporate entities established by statue) All authorized signatories will be required to complete a mandate card which in this case is the specimen signature mandate card (the card). These can be obtained from CBK offices around the country and online, for non-residents.

The cards should be completed in block letters where neatly and clearly inscribed names MUST be written in the order that they appear on the identification document. Any alterations/errors MUST be signed against and the mandate card should not be disfigured in anyway Authorized signatories are required to sign in the card in the presence of their commercial banks official, a designated CBK officer or any authorized CBK agent. Completely filled up mandate card(s) should be submitted to CBK online or in hard copy together with one certified and recent colour passport size photograph. The certification of the colour passport photograph MUST be done by the investors commercial bank, a designated CBK officer or an authorized agent of CBK. Original or certified copies of the following documents are required. Note that one copy of each document will be retained by the CBK 1. Certificate of incorporation and/or valid license to operate, for institutional investors 2. Board resolution appointing authorized signatories, for institutional investors 3. National identity cards and/or valid Kenyan passport, for individual investors

Two signatories of the investors bankers, whether a commercial bank or financial institution, MUST sign and stamp the mandate card on the space provided, confirming the bank account details Change of any information about an investor such as address MUST be advised to the CBK through a letter signed by the signatories to the account shown on the original mandate card For institutional entities, at least TWO signatories MUST sign for any transaction involving Kenyan Government securities