News Column

Govt to Issue Frw15 Billion Bond

August 26, 2014

Stevenson Mugisha

The government is set to issue a five-year fixed coupon rate treasury bond worth Frw 15 billion, the Minister of Finance and Economic Planning Claver Gatete has announced.

The bond will be issued on August 27, and the investor book will be opened from August 25 to 27.

"The purpose of the bond is to facilitate the development of the capital market as well as funding infrastructure projects which are programmed for the 2014-2015 financial year," Gatete said.

The issuance follows a successful 3-year bond which was issued in February this year and was oversubscribed by 140% which showed investor confidence in Rwanda's currency and economy.

Gatete noted that the bond provides an investment opportunity that is attractive and risk-free since it's guaranteed by the State, and it's very liquid as bonds can be sold anytime on the stock exchange.

He observed that the bond ensures good investment return and can be pledged as collateral for any loan adding that it has been granted tax incentives as withholding tax on interest has been reduced from 15% to 5% for East African resident tax payers investing for three years and above.

The issuance strategy for 2014-2015 fiscal year was derived from a broader government medium-term debt strategy which suggests that domestic debt financing requirement in should not exceed a level of 1% of projected GDP, in order to avoid crowding out the private sector.

The expected revenue of Frw 15bn will be sufficient enough to support the liquidity during the first quarter of 2014-2015 fiscal year and will represent 37%% of total domestic financing to be used in 2014-2015 as per annual budget approved by parliament.

Broader investor base

The choice of a 5-year maturity is expected to attract a broad investor base both locally and internationally which will reduce the risk of declining investor interest in specific maturities, and it will ensure a smooth repayment profile that will reduce the risk of refinancing very large volumes of debt in unfavorable market conditions while keeping sustainable levels of debt.

Statistics indicate that the government's overall domestic debt represented 6.6% of GDP at the end of 2013 and it was constituted of 36% of medium term debt in terms of treasury bonds against 64% of short-term debts.

Going forward the objective of the treasury bonds is to increase the share of medium-term domestic debt up to a level of more than 40% of total domestic debt while reducing short-term debt and contribute to the development of domestic capital market.

"Building the capital market is one of the ways of creating avenues of financing the government and the private sector as well," said the governor of the Central Bank, John Rwangombwa.

He noted that the bond will be broken down into units starting from Frw 100,000 adding that for a bidder to determine the interest rate, he needs to invest at least Frw 50 million.

Rwangombwa added that BNR has set up outlets across the country in different banks which help in identifying those investors who want to invest in this bond.

"We have had road shows across the country because we want as many Rwandans as possible to invest in these bonds because this is beyond the government's initiative of borrowing from the public because we want Rwandans to invest in the capital market and be able to improve on their incomes," he said.

He noted that they have so far gone to over 20 districts while educating Rwandans on how they can invest in bonds.

According to Gatete, two bonds were issued in the first half of 2014 begun with the first Treasury bond of Frw 12.5 billion in February which was issued by the government which attracted a rate of 11.5% which he said is higher than the interest rate most commercial banks in Rwanda pay on customer savings and the second one which was issued by the International Finance Corporation.

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Source: AllAfrica

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