Rwanda firming up planned $205m Eurobond issue By GAAKI KIGAMBO for The East African | Monday, November 12   2012 at  13:44

John Rwangombwa
Rwanda minister of Finance and Economic Planning John Rwangombwa is looking to plug budgetary holes. FILE | NATION MEDIA GROUP 

Rwanda is set to issue a $205 million Eurobond by the end of next month as it seeks to seal budgetary gaps following suspension of donor aid by several countries.

Mr John Rwangombwa, the Minister of Finance and Economic Planning, said the country was approaching the final stages of the issue, with investor appetite in the instrument said to be on a new high due to Kigali’s improved credit ratings.

It is one of the many ways the country is looking at to offset resource constraints following the suspension of budget support amounting to $128.1 million (Rwf 78.4 billion), or around 10 per cent of the total budget, following allegations that Rwanda was behind a new rebellion in eastern DRC. The government has refuted the claims.

“We have been doing so many ratings for the last five years and what we hear from the market is that the appetite is high, we want to take advantage of that,” Mr Rwangombwa said during plenary discussions focused on development strategies and finance at the 7th edition of the African Economic Conference that Kigali hosted last week.

“Of course, as we go into these Eurobond markets it requires us to strengthen our debt management departments, to properly channel these resources we borrow to avoid going back into the debt trap we were in, in the 1980s. It is good the investors are calling us to tap into the opportunities outside but how we manage this is also key to ensure growth,” Mr Rwangombwa added.

Eurobonds are increasingly emerging as an attractive source of funding for many African countries because they are at historically low interest rates of about one or two percentage points in hard currency markets, according to Dr William Kalema, Uganda’s managing director of BDO East Africa.

“This is unlikely to be the case maybe seven years from now. So we are at a time when foreign capital is cheap to borrow and money centres are willing to look at African bonds,” Dr Kalema added while stressing the possibility of developing alternative sources of funding in the face of the declining funds in official development assistance.

Zambia precedent

The move, however, calls for the right policy response and institutional frameworks, a more business friendly policy and regulatory environment, and public sector investments that enhance growth by improving the efficiency and competitiveness of private investments.

So far, eight countries have issued Eurobonds since 2007, with the most recent being Zambia, which issued a 10-year Eurobond to unprecedented success that, in some ways, has emerged as an inspiration for other countries.

“Zambia went to the markets a month ago looking for $750 million. The bond was oversubscribed to $11 billion ...but they were wise enough to take only the $750 million because of debt management issues,” Donald Kaberuka, the President of the African Development Bank, noted recently in Rwanda.

“So, we are encouraging our clients to tap those markets but we are cautioning that before you do, strong domestic debt management capacities are absolutely fundamental. If you don’t do that we will be going straight to the Asian financial crisis of 1997,” he warned.

While presenting the national budget in June, Minister Rwangombwa touted the international community’s confidence in Rwanda’s debt management capacity, which he said had qualified the country to receive budgetary loans.

Macro stability

Rwanda’s Eurobond plans, however, might be affected more by the political storm it has been caught up in for the past five months owing to a UN accusations that it is backing instability in eastern DR Congo.

This political environment has already influenced American based ratings company Standard and Poor’s, which lowered Rwanda’s rating for 2012 from positive to stable, denting, even if only slightly, the perception of Rwanda.

Rwanda’s Central Bank, however, is confident S&Ps rating will in no way affect the Eurobond plans.

“It never said anything about the macro-economic stability and that was very crucial,” Claver Gatete, the Governor of Rwanda’s National Bank, told The EastAfrican.

“They were only talking about the recent issues that are more political in nature. The Central Bank has no role over that even if they affect the country. But assuming that they are really addressed very quickly, then no problems would happen [to the Eurobond],” Ambassador Gatete added.

According to him, in spite of all the political problems, “the fundamentals of the economy are still intact whether it is in the short term, medium term or long term. That’s where we are putting all our strength to make sure that it remains intact.”