Bond investors lapped up Rwanda's debut EUR 400 million bond in their quest for higher yield. Low global interest rates have bond investors parched for returns and the African state's offering was more than eight times oversubscribed, offering yield of 6.875%.
The bond also marked a coming-out party for Rwanda, which has been lauded by multilateral institutions for sound economic planning and a business environment conducive for growth.
"By raising the profile of the country among international investors, the issue could also increase their interest in the country and have further positive impact," said Arnaud Louis, associate director at Fitch Ratings.
The government intends to use the proceeds of the Eurobond to refinance existing external loans, lower short-term external debt maturities and increase Rwanda's fiscal headroom. The government also plans to use the monies to build a conference center in Kigali and fund a hydro-electric power project.
A part of the 10-year issuance will be used to pay off existing debt, and is equivalent to 2.7% of 2012 GDP.
"The size of the issue, although not big enough to gain entry to benchmark indices, is highly significant for Rwanda. It is equivalent to 47% of FX reserves at end-2012, which stood at USD 843 million, equivalent to 4.8 months of goods imports," said Louis.
Challenges remain
One of the key challenges will be to use the proceeds efficiently, notably to support an increase in the narrow export base, strengthen external finances and allow faster accumulation of FX reserves.
"In 2011, goods exports only accounted for 26% of current account receipts and tourism for another 14%, while the largest proportion came from current transfers (49%, mostly grants from international donors and remittances)."
The government's finances were hit last year after Western donors - upset at Rwanda's alleged role in Democratic Republic of Congo's conflict and military support to a rebel group - suspended or delayed aid. Germany and the UK have slowly resumed some of the aid to the country.
"Rwanda continues to face the challenge of adjusting to the partial suspension and delays in donor budget support," the IMF said. "The government appropriately adjusted economic policies in 2012 by re-phasing some spending to the first half of 2013 and by preparing a supplementary budget this year, which reduces current spending in line with available resources."
IMF expects Rwanda's GDP growth to pull back to 7.5% this year, from 8% last year.
Rwanda's bond oversubscription points to a bubble forming in the global bond market, but also highlights the faith foreign investors appear to have in the country.
Charles Robertson, chief economist at Renaissance Capital, noted that his visit to Rwanda "provided the greatest positive shock" of his professional career.
"If you have any doubt that an African country can emulate the best performance seen in emerging Europe or Asia over the past few decades, then please allow us to take you to Kigali to challenge these assumptions," the economist wrote in a report.
"From the ease of visa-free travel and a well-organized and hassle-free airport, to the reassuring presence of police and security forces, streetlights, low crime, good roads and broadband, we suspect there will be much to impress you."
Africa's Singapore?
With the 1994 genocide fast becoming a distant memory, Rwanda is looking forward to establishing itself as the Singapore of Africa.
There are certainly some similarities, as Singapore has managed to hold its own and emerge as a key Asia hub despite competition from much larger neighbors with greater natural and financial resources.
"With access to a market of 130 million people in the East African Community, Rwanda aims to be a hub for investment for both East and Central Africa," said Robertson. "Like Singapore at first, Rwanda is keen to attract any investors and is changing its requirement that investors export 80% of production."
Rwanda is the easiest country to do business in the five-member Eastern African Community (EAC), which also comprises Burundi, Kenya, Tanzania and Uganda.
"Rwanda, the top performer in the region, made the most progress over the past seven years," said the World Bank's Doing Business report, published on May 2. "Worldwide, it made the second-most progress. Over that period, Rwanda implemented 23 regulatory reforms, making it easier to do business. The economy, among others, has undertaken ambitious land and judicial reforms, introduced new corporate, insolvency, civil procedure and secured transactions laws."
Rwanda is also trying to boost its capital markets with the country's regulators encouraging local companies to seek listings.
A Rwandan Capital Markets Authority (CMA) official told Reuters he expects Commercial Bank of Rwanda and RwandAir to list on the market soon. Other potential listings could include insurance company Sonarwa, Fina Bank and the local division of MTN, South Africa's telecom giant unit.
© alifarabia.com 2013
