What is Dirty vs Clean price when it comes to investing in infrastructure bonds (IFBs)? To answer this question, let us use the recently issued infrastructure bonds. But first we define Dirty vs Clean price. Dirty price is when a bond price includes interest that has accrued (accumulated) since the last coupon payment. Dirty Price is made up of Clean Price plus Accrued Interest.

When investors buy fixed-income securities, such as bonds, they expect to receive coupon payments based on a fixed schedule which is fixed.

So, unless a bond is purchased on the coupon payment date, the bond price likely includes the interest that has accrued since then. Therefore, a buyer misses out on one coupon payment, and the seller will pocket the accrued interest. This would then be a dirty price.

Once a coupon payment has been made, like in the case of the infrastructure bond IFB/1/2018/015 which paid on 21st July 2025, there will be no further payments until the next payment date that is supposed to be on 19th Jan 2026. The interest that accrues between 21st July and 18th August when the bond will be settled as per the prospectus, is known as the accrued (accumulated) interest.

The price is referred to as “dirty” because the buyer pays for the price of the bond plus the accrued interest but won’t receive any coupon payments until the next payment date on 19th Jan 2026 as per the fixed schedule of that bond as they’ll be the new owners of the bond.

‎For IFB1/2022/19, ‎the settlement date is on 18th August which is the exact same day the coupon of this bond is to be paid. Hence, there will be no interest accrued from the date of latest payment which is 18th August to the date of settlement which is still 18th August. This means that the price is at par (every Sh100).

Let us do some math to expound on this further using the IFB/2018/015:

Accrued Interest is 0.9615 per Sh100. With a coupon of 12.500 percent, the clean price as per the schedule attached below is Sh99.9755. Therefore, with the formula above; Dirty Price is 99.975 plus 0.9615 which comes to 100.9370 per every 100. So if we assume you want to invest with Sh1 million, for every 100 needing 100.9370, you will need 1,009,370 to purchase a bond of worth Sh1 million. You will either need to top up your Sh1 million or get bonds worth Sh900,000 or thereabouts.

Remember, Coupons are calculated on the Face Value of the bond. In this case; if you top up your Sh1 million and pay the extra amount, your coupons per annum will just be Sh125,000 (12.5000 percent by Sh1 million).

All these are important for your planning, both for what you need to pay and how your coupons will look like when they hit your account. Be a Smart Investor!

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Rhina Namsia is the founder and chief executive officer of The Acemt Consulting, a training and consultation company that provides financial planning and investment advisory.