News Column

Govt Targets SMEs in Latest Treasury Bond

August 21, 2014

Ben Gasore



The Government is looking at tapping financial resources of small and medium entrepreneurs in the country as well as in the region to raise Rwf15 billion from the issuance of Treasury Bond next week.

Proceeds of the bond will be used to finance infrastructure projects in the current financial year, the minister of Finance and Economic Planning, Amb. Claver Gatete said yesterday.

The government also hopes that the listing of the bond on the Rwanda Securities Exchange, on September 2, will encourage private companies to do the same and spur the development of the country's capital markets.

SMEs urged on:

Amb. Gatete encouraged SMEs to take advantage of this alternative investment opportunity government debt has provided them.

"This bond is risk-free since it's guaranteed by government; liquid as bonds can be sold anytime at the Rwanda Stock Exchange (RSE); ensures a good investment return and can be pledged as collateral for any loan," he said.

The minister added that interest payments on the bond will be favourable to investors similarly to the previous Rwf12.5 billion Treasury bond issued in February this year which attracted a rate of 11.5 per cent.

This, he said, is higher than the interest most commercial banks in Rwanda pay on customer savings.

Average interest on savings yesterday was at around 8.05 per cent, according to the National Bank of Rwanda.

Gatete said interest on the bond, which is paid every six months, will also receive a tax incentive of a reduction in withholding tax from 15 to 5 per cent for EAC residents.

He was optimistic that the bond will be well received by the market, building on the success rate of the three-year Treasury bond and five-year International Finance Corporation bond issued in February and May this year. The two were oversubscribed by 140 and 110 per cent, respectively.

According to the minister, the choice of the maturity period (five years) for the Rwf 15 billion Treasury bond will help attract a broad investor base, thereby reducing the risk of declining investor interest in specific maturities.

To add to that, it will ensure a smooth repayment profile that will reduce the risk of refinancing large volumes of debt in unfavourable market conditions while keeping sustainable levels of debt.

The government overall debt currently stands at 27.8 per cent of the Gross Domestic Product, while domestic debt is at 6.3 per cent.

"The issuance strategy for this fiscal year suggests that domestic debt financing should not exceed one per cent of the projected GDP in order to avoid crowding out the private sector," Gatete said.

John Rwagombwa, the central bank governor, allayed fears that government participation in the market would deplete credit to the private sector as banks rush to lend to government through purchase of the risk-free Treasury bond, saying there is sufficient flow of credit to the private businesses.

"We have already issued two bonds in the first half of this year and within that same period credit to the private sector has increased by 47 per cent," Rwagombwa said.

Good alternative:

Samuel Munyankumburwa, the managing director of Goshen Finance, said much as they haven't planned to bid, the bond is a good alternative for saving while earning higher interest.

He added that it was also better option for the government to raise funds cheaply from within instead of going for expensive external borrowing.

Sanjeev Anand, the managing director of I&M Bank, said: "The fact that government is issuing on a regular basis is actually a good thing."

He said it would also increase the number of tradeable instruments in the market, thus help grow the local capital markets.


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: AllAfrica


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters