A consortium of three local banks and one foreign bank announced last week that they had agreed to issue guarantees worth $322.8 million (approximately Rwf464.6 billion) for Rwanda’s new international airport. The guarantees were issued by BPR Bank Rwanda, Bank of Kigali (BK), the Development Bank of Rwanda (BRD), and KCB Bank Kenya. The three local banks participated availing $223.9 million whereas $96.8 million was availed by KCB Kenya. These guarantees have been extended to a joint venture of three contractors undertaking the construction of the New Kigali International Airport, a $2 billion project being developed by the governments of Rwanda and Qatar. According to Patience Mutesi, Managing Director of BPR Bank Rwanda, the government, owner of the project, has contracted three firms to carry out the airport's construction. Banks will provide guarantees to the government on behalf of these contractors. “It wasn't like we funded the project, but we gave guarantees to the contractors. The contractors came to us and asked that we help to get the guarantees locally,” she revealed. “We brought on board Bank of Kigali and BRD and together as a consortium, plus KCB Kenya, were able to issue the guarantees that were required by the contractors.” The joint venture undertaking the construction of the airport is called UMC, which contracted with the government of Rwanda. It comprises Portugal’s Mota‑Engil, Urbacon Trading & Contracting (UCC), and Greece’s Consolidated Contractors Company (CCC). UCC, a Qatari-based construction firm, is coordinating the project, Portugal’s Mota‑Engil is responsible for major infrastructure works including the runway and earthworks, while CCC is partnering with the two firms to provide engineering and construction expertise. BPR Bank Rwanda PLC led the consortium of lenders as the Mandated Lead Arranger and Facility Agent. This means the bank played a leading key role in structuring and negotiating the facility on behalf of the three contractors. As a facility agent, BPR Bank is also in charge of managing the facility on behalf of all the lenders involved – handling payments, and monitoring terms, among others. Inside the deal According to BPR Bank Rwanda, a consortium of four banks will issue both performance and advance payment guarantees in support of the joint venture. These guarantees do not involve direct disbursements from the banks’ balance sheets to the contractors. Rather, they represent a financial commitment: if either the contractors or the government fail to meet their contractual obligations, the banks will be obligated to compensate the affected party in accordance with the terms of the guarantees. In practice, once the government commits to undertaking a large-scale infrastructure project, the initial step is to procure qualified contractors. For the airport project, this resulted in the formation of a joint venture comprising three construction firms. Typically, the government does not disburse the full contract value upfront. However, contractors are often unable or unwilling to mobilise resources without some level of financial support, either due to risk considerations or limited liquidity. As such, they require an advance payment to initiate project activities, which is commonly secured through advance payment guarantees issued by banks, and this is exactly what happened. An advance payment guarantee assures the project owner – in this case, the government – that the funds disbursed in advance will be used strictly for the execution of the contracted works. If the contractor fails to apply the funds appropriately or defaults, the issuing banks assume responsibility for reimbursing the government. “We are basically taking a risk on the contractor based on the work that they have done in the past. We did an assessment of the projects that these contractors have done world over,” Mutesi said. “They're solid companies. So, we were able to take a risk to say, once that advance payment is done, and the contractor doesn't use it for the project, we would have to then make a payout,” she added. A performance guarantee, on the other hand, represents the bank's commitment to the project owner – in this case, the government – that the contractor will fulfill their contractual obligations. If the contractor fails to perform satisfactorily, the bank assumes the financial risk and will compensate the government accordingly. “The government gave them the contract based on their capacity. But who knows, a lot can happen throughout the implementation of the project. And this is a four-year project,” Mutesi noted. “Should there be anything that derails the contractor from completing the project successfully is when the owner of the project, in this case, the government, would come to the banks and say, this contractor that you took a risk on is not able to complete this project, so pay us,” she added. Risk worth taking? The exact level of exposure each of the four banks assumes under this deal has not been publicly disclosed. However, what is evident is that existing banking regulations provide a safeguard, not only for individual institutions, but for the stability of the financial sector. According to regulations set by the National Bank of Rwanda, no financial institution is allowed to extend credit, whether on-balance sheet or off-balance sheet, including guarantees, exceeding 25 per cent of its core capital to a single borrower. The only exception to this single obligor limit is when the exposure is fully backed by guarantees from third-party financial institutions that are accredited by the central bank to provide such coverage. In the current arrangement, the African Trade & Investment Development Insurance (ATIDI) has provided a counter-guarantee of $84 million to back the three local banks involved. This risk-sharing mechanism enables the banks to collectively support obligations that would otherwise exceed their individual exposure limits. BPR’s chief explained that the risk associated with issuing such large guarantees is mitigated by regulatory constraints that limit a bank’s exposure to a single counterparty. “Should there be a scenario where the contractors are not able to complete the project, and the government comes and says, pay us our money because the contractors were not able to, we would not be paying more than 25% of our core capital, and ATIDI would then come in to cover the extra part,” she explained. In addition, the four banks are confident that the joint venture of the three contractors are worth betting on given their previous experience in undertaking large scale airport construction projects. BPR officials revealed that due diligence and extensive assessment was conducted throughout the process of structuring the deal. This included visiting the contractors in the countries where they operate, and the projects that they had completed. The banks also reviewed letters of satisfactory completion of the contractors’ previous projects. “It was a risk that was definitely worth taking,” Mutesi argued. Who’s doing what? BPR, as the lead arranger, is the primary local bank, contributing the largest share of the total guarantees at $90 million. Bank of Kigali has committed $85 million, while BRD is providing $50.9 million. KCB Kenya has contributed $96.8 million. Unlike local banks which relied on counter-guarantee of ATIDI, KCB Kenya took on the risk directly without relying on ATIDI’s protection. The New Times understands that BK PLC issued two counter guarantees to BPR: A counter guarantee of $42.5 million to back the issuance of an advance payment guarantee for a tenor of 1,215 days, and a counter guarantee of $42.5 million to back the issuance of a performance guarantee for a tenor of 1,789 days. By taking on the risks, the four banks involved in the deal are hoping to make decent returns on fees and commissions, as well as retain a large portion of not just contractors, but also sub-contractors and everyone involved in the pursuit of the airport construction project. According to Jean Claude Iliboneye. Head Of Business Development at BRD, the deal will generate non-interest income for the bank while reinforcing its mandate to support national development. “It also diversifies our portfolio through trade finance instruments, without impacting our traditional lending,” he said. “Beyond the financial returns, the project supports job creation, private sector growth, and national infrastructure development—while also boosting Rwanda’s global connectivity by enabling a world-class airport that enhances regional and international access,” he added. As more investors continue to pour into Rwanda, perhaps this deal will send signal that local banks are increasingly taking on large obligations, which makes the investment landscape even more attractive.
