The newly issued Rwf15 billion Treasury bond started trading on the Rwanda Stock Exchange (RSE), yesterday, bringing to five the number of government debt papers listed on the secondary market.

The seven-year maturity bond, issued last week, carries a coupon (interest) rate of 12.475 per cent per year and a yield rate of 12.5 per cent.

Both rates are higher than those of the previous bonds issued by government.

Speaking after the start of trading, Celestin Rwabukumba, the chief executive of the RSE, said yesterday’s listing is another confirmation that Rwanda’s debt market is now "up and running.”

"This is another market segment that is starting to take shape. Since it is an additional product on the market, we are providing another benchmark for Rwanda on the price of money,” Rwabukumba said.

Usually, government paper serves as the benchmark for the pricing of money – at what interest rate an individual or firm can borrow at.

"Before today, no one knew the price of money for seven years other than the banks which have their own,” he said.

Local investors snapped up the bond – which was oversubscribed at 187 per cent last week, with retail and individual investors taking 1.4 per cent of the bond.

Commercial banks got 45.6 per cent while non-financial institutions took 53 per cent.

Rwabukumba projected that interest rates on loans in general would fall in Rwanda as more institutions seek to borrow from the public through issuance of bonds.

"When the debt market grows, it implies that everyone, even on the corporate side, can get money because the government is borrowing from it. And the fact that the interest rates in most banks are higher, our goal is to reduce the gap,” he said.

Impact of bonds

Last month, figures from the central bank showed the average lending rate of commercial banks in the market to be at 17.87 per cent per annum, which is higher than the 12.5 per cent the government will pay per annum for the Rwf15 billion Treasury bond.

Rwabukumba added that the advantage with bonds is that companies that issue them are not obliged to repay the debt per month, but chould choose twice or once a year.

They are not even required to present collateral as is the case with borrowing from banks—allowing businesses to get their desired cash flows within three or four years.

"We need to tell people that it’s not only about issuing company shares at the RSE, but also how they are better off issuing bonds,” he said.

The government started a quarterly Treasury bond issuance programme this year in a bid to create awareness of the capital market and raise money for key infrastructure development.

The World Bank’s private sector arm, the International Finance Corporation, joined in the programme as well, raising Rwf32.8 billion from the market earlier this year, making it the second corporate bond listed on the bourse after I&M Bank’s Rwf10 billion bond issued in 2010.

Rachid Muremangingo, the chief finance of Cogebanque, said investing in bonds is marketable in that it allowed those who have bought them to sell at anytime through the secondary market in case they faced liquidity challenges apart from receiving an interest payment annually.

"The government bonds have provided alternatives for people to invest, meaning that there is more motivation for people to save in order to invest in the bonds since they are more liquid than other investments like a plot of land,” he said.

Muremangingo added that at the end of the day, issuing bonds will be the trend for both issuers and investors as it is very strategic.

Olivier Muneza, a broker with MBEA Brokerage Services, said with more bond issuances, there would be more trading activities in the secondary market.

"More people will be buying and selling the different bonds in order to make profit,” he said.

RSE statistics show that bonds worth Rwf1.02 billion from the previously six listed bonds were traded in the past 11 months, highlighting an increase in public interest in the market segment.

editorial@newtimes.co.rw