The sale of new 10-year debt drew more than US$1.6bn of orders, according to bankers arranging the deal.
Investors have been drawn to relatively high-yielding emerging market dollar bonds in recent weeks amid a plunge in developed country bond yields which has pushed US and European borrowing costs to their lowest since February.
Monday’s Rwandan bond follows a second visit to the international bond market by Benin last month, and dollar debt sales by Cameroon, Kenya and Senegal in June.
“Yields for these countries are pretty low considering what’s happened in US Treasuries,” said Kevin Daly, a fund manager at Aberdeen Standard Investments who participated in Monday’s sale.
“It makes sense for Rwanda to do this now.” The sale, which was handled by Deutsche Bank and Citigroup, priced the new debt at a yield of 5.5 per cent. Just over half of the proceeds will go towards refinancing the majority of the country’s other outstanding bond, which raised $400m in 2013 and was due to mature in 2023, with the remainder destined for spending on “key priority projects” to bolster Rwanda’s economic recovery. The larger size of the new bond means it qualifies for “benchmark” status and will be included in widely followed bond indices.
President Paul Kagame who has led Rwanda since the aftermath of the 1994 Genocide against Tutsi has sought to develop the country’s tourism sector while transforming the capital, Kigali, into a business hub. The economy has grown rapidly in recent years, although it contracted last year due to the impact of the pandemic.
Fitch last week gave the new bond a B plus rating, four notches into “junk” territory, and revised Rwanda’s outlook to negative from stable. The rating agency said a failure to stabilise debt at current levels of roughly 70 per cent of gross domestic product could lead to a downgrade in the future, even though much of the country’s debt is in the form of low-cost loans from international institutions such as the African Development Bank and IMF. Debt levels have leapt from about 50 per cent of gross domestic product in 2019 due to emergency funding to low income countries to help them weather the pandemic.
“These kind of sums are peanuts for the bond market but for Rwanda it’s a lot of money,” said Gregory Smith, a fund manager and author of Where Credit Is Due, a book about Africa’s debt burden. “A yield in the 5 per cent range is low for Rwanda so this kind of liability management is a good idea. But if they started to come back to the market regularly that could be a cause for concern.”
Commenting on the results, the Minister of Finance and Economic Planning Dr. Uzziel Ndagijimana said thatRwanda has a strong track record of sound economic policies and reforms that have led to sustained high economic growth, a conducive investment climate, prudent debt management and strong recovery prospects despite the impact of the COVID-19 pandemic.
The Governor of the National Bank of Rwanda, John Rwangombwa also welcomed the positive response from investors in this 2021 Eurobond issuance.
“The lower yield of this issue will result in a reduction in our annual interest payments over the next 10 years, strongly contributing to our debt sustainability strategy. The funds raised will accelerate strategic projects in productive sectors that will further boost the country’s economic transformation efforts,” he said.