The Government will next week return to the money market with a Rwf15 billion Treasury bond aimed at raising money for ongoing infrastructure projects as well as inject vibrancy into the country’s young capital market.
The announcement was made yesterday by the Minister for Finance and Economic Planning, Claver Gatete, and the National Bank of Rwanda (BNR) Governor John Rwangombwa.
“The purpose of the bond is to facilitate the development of the capital market as well as fund infrastructure projects,” the Finance ministry said in a statement released yesterday.
The seven-year bond is part of the Rwanda government Treasury bond issuance plan for Fiscal Year 2014/2015 and follows the largely successful Rwf12.5 billion three-year bond and Rwf15 billion five-year bonds issued in February and August respectively.
Officials said the two bonds, oversubscribed by 140 and 232 per cent respectively, showed investor confidence in Rwanda’s financial market and the economy in general. It is hoped that this new bond will also attract many bidders.
The book building process for the bond will open on November 24 and close on November 26 when the coupon (interest) rate will be determined. It will be listed on the Rwanda Stock Exchange on December 2, Rwangombwa said.
Previous bond issuance attracted institutional investors such as pension funds and insurance companies with participation increasing from less than 10 per cent to more than 50 per cent while foreign participation of banks, institutions and retailers represented 8 per cent from nothing.
Officials said next week’s bond will provide investors an additional investment opportunity that is attractive by ensuring a good return on investment which can also be pledged as collateral for any loan in the country.
Investors in the seven-year bond will also enjoy tax incentives with the East African Community (EAC) paying a lower withholding tax rate of five per cent on the interest earned from the investment. Non EAC residents will pay the normal rate of 15 per cent.
Both Gatete and Rwangombwa expressed confidence that more Rwandans will subscribe to the bond next week because they have been sensitised to trade on the Rwanda Stock Exchange (RSE) and making investments in different government bonds.
“Campaigns that have been done countrywide helped Rwandans understand the importance of this. We believe the bond could be more subscribed than our previous (domestic) bonds,” Gatete said at a news briefing yesterday.
The issuance of next week’s bond is in line with the government’s strategy for domestic debt financing requirement in Fiscal Year 2014/2015 and its proceeds will be invested in projects such as building roads and supplying water as outlined in the first quarter of Fiscal year 2014/2015.
Officials said the choice of the maturity for seven years will help attract a broad investor base, including local, regional, and international bidders.
Capital Markets Authority chief executive officer Robert Mathu said the bond will boost operations on the country’s capital markets because it would provide long term capital that is crucial for funding long term projects.
“The government is giving people an opportunity to save money on a longer term basis,” he said.
Mathu said he expected the private sector would now gain confidence and sell bonds to the public through the Rwanda Stock Exchange using the government’s bonds as reference points while deciding their coupon rates.