The private sector should take advantage of the growing popularity of the stock exchange and issue bonds to raise long-term funding to expand their enterprises, a senior Rwanda Stock Exchange (RSE) official has said.
Celestin Rwabukumba, the RSE chief executive officer, noted that private firms now have a benchmark to guide them in pricing their bonds “since the government has issued numerous bonds since 2008 for the private sector to base on”.
This year alone the government has issued two successful Treasury bonds the most recent issued a fortnight ago while the first was issued in February.
“As the issuance of government bonds continues, companies now have a benchmark to follow. If the government is issuing a five-year bond at 11.8 or 12 per cent, firms can use this as guidelines to price their bonds,” he explained in an interview with Business Times.
Paying around 11.8 or 12 per cent for funding would be a better bargain for any company as most local commercial banks charge an average lending rate of 17.5 per cent per annum, making it expensive for a company that needs money to fund long-term projects. Rwabukumba also said some firms were considering coming onto the fixed income securities market to raise funding, while others are looking at venturing in the equities side of the stock exchange.
“At the end of the day, the decision on how much they need to raise and when to come to the market will be theirs,” he said.
He noted that many enterprises have outstanding credit balances with banks and that awareness was increasing on sourcing affordable investment funding through the exchange.
Presently, there are two corporate bonds trading at the RSE. I&M Bank Rwanda issued a 10-year corporate bond in 2008 in a bid to raise capital. The bond, which matures in 2018 is fetching investors an interest of 10.5 per cent per annum.
On the other hand, the World Bank’s International Finance Corporation Umuganda bond listed at the stock exchange in July is fetching investors an interest of 12.25 per cent per year.
Lawson Naibo, the Bank of Kigali chief operating officer, said the ball was in the private sector’s court to decide whether to raise investment capital from banks or the capital market or both.
“Most firms seek long-term funding from banks. However, the capital market presents them a better alternative to raise funds and expand their businesses. They can now try and ensure that they get their capital not only from banks but also from the capital markets,” he said.
Naibo said it was a question of being ‘mentally ready’, saying the Capital Market Authority has instituted many reforms to encourage investors to exploit the RSE to raise finances.