Rwanda to float $21.6m bond for infrastructure

Trading at the Rwanda Stock Exchange. The bourse has three government bonds with the longest a five-year bond maturing in September 2016 and one corporate bond by I&M Bank. PHOTO | FILE | NATION MEDIA GROUP 

By ALEX NGARAMBE The EastAfrican

In Summary

• Rwanda is planning to issue the five-year government paper on August 27 with the coupon rate being determined by market research.

Rwanda is seeking to increase its domestic borrowing by issuing a $21.6 million Treasury bond before the end of this month.

Although the government is yet to give details about the Treasury bond, it is seeking to invest the funds in the development infrastructure projects as well as boost trading activities on the stock market.

Rwanda is planning to issue the five-year government paper on August 27 with the coupon rate being determined by market research.

With government borrowing from both local and international investors, the bond is attracting a withholding tax of five per cent for the East African Community residents and 15 per cent for international clients.

Once the borrowing is finalised, government plans to pay the interest on a semi-annually basis.

“This is another instrument on the market which will increase trading activities and the volumes transacted which is healthy for the young market,” said Emmanuel Rugamba, a broker with CDH, one of the firms that will be facilitating the trading of the bond.

The oversubscription of recent bonds issued by the International Finance Corporation and the government signal the appetite on the local bond market.

The IFC bond attracted an interest rate of 12.5 per cent and with the high appetite on the market; the upcoming T-bond is expected to fetch an interest rate of between 12.5-13 per cent.

READ: IFC bond investors reluctant to sell stake

“The higher the interest rate the higher the appetite on the market and this is the case for the Rwandan market and there is likely to be an oversubscription for the coming T-bond,” added Rugamba.

Government is increasing its borrowing on both the domestic market as well as the international one for various development projects and the economic experts say it is not an alarming rate.

READ: Rwanda govt in plan to boost secondary market deals

The Ministry of Finance data shows that Rwanda’s total public and publicly guaranteed debt is estimated at $2.16 billion, representing 30.2 per cent of the GDP as of June 2013.

“Rwanda’s debt is quite under control at the moment with total external public debt rose to 21.5 per cent in 2013, up from 16.3 per cent in 2012 - but by contemporary European standards, for instance, this level of debt is still very low,” said Mr Andrew Mold, Chief of Sub-Regional Data Centre and Senior Economic Affairs Officer Sub-regional Office for Eastern Africa of the United Nations Economic Commission for Africa.

However, the potential difficulty for Rwanda is its current account imbalance, product of the trade deficit, combined with a narrow export base, which makes financing foreign debt more challenging.