IMF backs Rwanda’s proposal for Eurobond

The ongoing construction of Kigali Conventional Centre. Rwanda intends to spend $120 million of the proceeds from the Eurobond on repaying an outstanding loan on the centre. Photo/Cyril Ndegeya  Nation Media Group

By JOHN GAHAMANYI The EastAfrican

In Summary

• Rwanda intends to spend $120 million of the proceeds on repaying an outstanding loan on the Kigali Conventional Centre as well as retiring another outstanding loan that was acquired to finance the expansion of national carrier RwandAir.
• Although most analysts said the borrowing will give Rwanda headroom for future growth, some raised concern over the prudence of such borrowing, given that half of it will be used to retire previous debt.
• The attractiveness of Rwanda’s Eurobond in the international market became the subject of scrutiny among analysts because such instruments issued by emerging markets generally involve a higher degree of risk than investments in the securities of corporate or sovereign issuers from more developed countries.
• Rwanda’s plan to borrow $400 million in the international debt market by issuing its first ever Eurobond is being met by positive signals, with the International Monetary Fund saying there is a big appetite for that kind of risk among international investors.

The country intends to use the money to bridge its funding constraints.

Government officials have, however, yet to announce the interest rates on the 10-year Eurobond. This will make it the first East African Community country to issue a Eurobond. Kenya had announced plans to issue a $1 billion Eurobond, but is yet to do so.

The Rwanda government intends to spend $120 million of the proceeds on repaying an outstanding loan on the Kigali Conventional Centre as well as retiring another outstanding loan that was acquired to finance the expansion of national carrier RwandAir.

The government had entered into a $100 million bilateral agreement with Citibank, NA, London branch for the continued construction of the Kigali Conventional Centre.

With the agreement due to expire in September this year, there is pressure on the Rwanda government to secure the money before that date.

Industry experts said that Citibank, which is affiliated to Citi Group Market Ltd — the lead manager for the issue alongside BNP Paribas — will make a killing from this bond issue and will emerge as one of the top winners.

The government will also spend $80 million on retiring RwandAir’s debts while approximately $150 million will finance the completion of the Kigali Convention Centre. Some $50 million is earmarked for funding the completion of the long-awaited Nyabarongo hydropower project
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Although most analysts said the borrowing will give Rwanda headroom for future growth because the proceeds are being invested in strategic projects that will enhance production in the long run, some raised concern over the prudence of such borrowing, given that half of it will be used to retire previous debt.

The government and the IMF sought to allay those concerns: “We think it is prudent because they will be retiring more expensive shorter-term debt.  It is good for the debt management of the country,” said IMF mission chief Paulo Drummond, who was in Kigali last week to assess the country’s performance under the Fund’s Policy Support Instrument (PSI) programme.

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Rwanda, which is not as well endowed with natural resources as most of its EAC counterparts, is pinning its growth on the service industry, where it seeks a comparative advantage.

“This is the very reason investment in RwandAir and the Convention Centre are necessary,” an analyst said.

The attractiveness of Rwanda’s Eurobond in the international market became the subject of scrutiny among analysts because such instruments issued by emerging markets generally involve a higher degree of risk than investments in the securities of corporate or sovereign issuers from more developed countries.

In October last year, Standard & Poor’s Ratings Services revised its outlook on the long-term sovereign credit rating for Rwanda to stable from positive

The revision, according to S&P, reflected their view that there is less than a one-in-three likelihood that they would raise the ratings on Rwanda in 2012 and 2013.

Moreover, the American rating agency reaffirmed its B/B’ long- and short-term sovereign credit ratings on Rwanda, citing a spike in regional tensions between Rwanda and the Congolese government over the alleged support by the former of M23 rebel operating in mineral-rich eastern Congo.

READ: Experts: No threat to Rwanda growth as ratings fall

Things have changed since then as one of the M23 strongmen, Bosco Ntaganda, handed himself over to the US embassy in Kigali.

Finance Minister Claver Gatete says Rwanda’s economy has become mature and can withstand “any kind of shocks.”

“That is why last year, although we had some issues of donor disbursement, the economy grew by 8 per cent while inflation was contained in single digits,” said Mr Gatete.