IFC bond aims to breathe life into Rwandan local debt market
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IFC bond aims to breathe life into Rwandan local debt market

The Rwanda debt market has been given a boost after the successful issue of the International Finance Corporation’s first bond in Rwandan francs, but regulators face an uphill battle to nurture the fledgling bond market.

Rwandan officials hailed the International Finance Corporation’s (IFC) first bond denominated in Rwandan francs, during the annual meeting of the African Development Bank in Kigali last week, as a step towards establishing a crucial financial lifeline and a productive means of channelling domestic savings.

The IFC raised RF15 billion ($22 million) on May 15 over five years with a yield of 12.25%. The debut bond, dubbed Umuganda, aims to expand the availability of long-term local-currency finance for local Rwandan businesses. The bond was 111% oversubscribed.

The local bond market in Rwanda has been dormant since 2010 when I&M Bank raised RF10 billion over eight years,” says Iza Irame, chief executive of African Alliance based in Rwanda. “The IFC issue is a reminder that there is a debt market in the country, and that corporates should start taking advantage of this funding route.”

Market players have high hopes, but a culture of investing in bonds needs to be nurtured and market-makers established.

“The IFC issue will set a benchmark for other corporates, although corporates will be expected to pay a premium against the IFC bond because there is little or no risk attached to their issue,” says Irame.

“This will hopefully encourage investor activity, which so far remains subdued, with main players in the markets buying and holding short-term government bonds. We’ll see if there is any movement over the next few weeks, once the IFC has been listed on the exchange.”

The sovereign is also making further efforts to expand the country’s debt capital markets by developing the yield curve. In February, the government issued a RF12.5 billion Treasury bond with a three-year maturity, kick-starting the sovereign’s Treasury bond programme with more issues due later this year.

“We don’t know too many details as yet, but we do know that all issues will be longer than a year, at the least, to expand the yield curve,” says Irame.

Longer maturities will also allow insurance companies and pension funds to match long-term liabilities with long-term assets – a problem that many African pension funds suffer from in a continent where generally the capital markets remain underdeveloped.

Working process

In 2007, the Rwandan government created the Capital Market Authority, the country’s regulatory body that oversaw the development of the Rwanda Stock Exchange (RSE). Rwanda is also home to the East Africa Exchange, which opened its doors in January 2013.

Similar to the debt markets, the equity markets in Rwanda remain small. Opened in 2011, the RSE lists two Rwanda companies: Bank of Kigali, the largest commercial bank in the country in terms of assets, and brewery company Bralirwa. Three other Kenyan companies – Kenya Commercial Bank Group, Nation Media Group and Uchumi Supermarkets – have been cross-listed on the exchange.

Currency volatility, illiquidity and a shortage of investable assets have tended to constrain foreign interest in sub-Saharan African equity and debt markets, outside South Africa, Nigeria and Kenya, triggering calls for greater capital-market coordination.

“Developing a central hub would be effective in terms of scale and scope in a region such as east Africa, where currently individual exchanges remain illiquid,” says Angus Downie, head of economic research at Ecobank.

For Claver Gatete, Rwanda’s minister of finance, the IFC bond’s success is a signal to the investor community to buy into the Rwandan brand.

Claver Gatete, Rwanda’s 
minister of finance

“Rwanda is slowly developing its capital markets, and the success of the recent IFC bond shows how the investor community is buying into our story,” he says. “The people are beginning to trust us.

“Much of our recent activity on the bond market hasn’t just been about raising money – it’s been about building up a relationship with investors. Things such as the recent IFC bond, our debut Eurobond and treasuries mean that investors can monitor our progress, so that next time we go to the markets they are aware of us and our performance.”

Moving away from an over-reliance on foreign aid is another important driver to develop the capital markets, and an emphasis on international best practice and strong economic fundamentals, glued together with political stability, will set Rwanda on the path to having a strong capital market in Rwanda, says Gatete. 

“Whenever there are problems in the donor world, this affects how much money they can give to us,” he says. “And as the economy continues to grow, there is no way that aid can continue to grow at the same time. We have to make sure that we can get money from somewhere.”


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