The Development Bank of Rwanda (BRD) last week opened an offer for its inaugural sustainability-linked bond worth Rwf30 billion with a maturity of seven years and a coupon rate of 12.85 percent. The offer, BRD officials say, is expected to be listed on the Rwanda Stock Exchange (RSE), in large part to finance, among other projects, small and medium-sized businesses as well as affordable housing. ALSO READ: BRD issues Rwf 30bn bond The development is also expected to raise women-led businesses from the current 15.4 percent to 30 percent, according to projections by the bank. But what are sustainable-linked bonds and why do they matter? Since debuting in 2019, it took less than four years for the SLB market to pass the $250 bn cumulative issuance milestone (which took green bonds a decade to accomplish). At present, according to FTSE Russel, a leading global index provider, the outstanding amount of all SLBs exceeds 10 percent of the size of green bonds and represents 7 percent of the overall labeled bonds universe. However, as the SLB market is still in its infancy and evolving, it continues to be a subject of debates and scrutiny. According to Fernand Kamanzi, the head of strategy research and resource mobilization, BRD’s particular issuance effectively links its sustainability strategy with its funding strategy. “It also demonstrates a commitment to improving the sustainability performance in areas that are relevant, core, and material to BRD’s overall strategy, business, and the local market.” As it stands, BRD operates in six key areas of intervention including agriculture, energy, affordable housing and infrastructure, manufacturing and export, education, green finance, and the digital economy. “We have been relying on the credit lines we have been getting from development partners and so there was an idea of turning to the capital market and raising funds from the private capital but also bringing a new asset class to the local market.” “This particular issuance allows BRD to have tighter pricing, we are seeing a lot of appetite for sustainability-themed issuances, and we are seeing appetite from investors to have diversification into these asset classes, so this additional demand should benefit the issuer from a pricing perspective,” he said. Largely beneficial For BK Capital’s Managing Director Siongo Kisoso, there are many different ways of assessing the impact of the bond issuance. BK Capital was the transaction advisor for this bond issuance. By and large, Kisoso said, the development allows BRD to diversify its source of capital and also to meet its development goals. “Looking at the country, this puts Rwanda on the global map. This is the first issuance by a national development bank, this is the first collaboration the World Bank is having with any of its long-term partners in structuring, and instruments such as these, bring us to making development finance a reality.” While the market has been quiet on the stock exchange, Kisoso pointed out that it was an opportunity to diversify, describing it as; “an option to have access to a high credit rating issuer, BRD is B+by fitch similar to the government of Rwanda, so investors can have a low-risk entry into the Rwanda stock exchange corporate bond market space.” He added; “Having a big issuance creates the platform for liquidity, which has been an issue.” Investors also, he pointed out, have access to an ESG investment, a credential that is given by a SLB bond. ESG bonds, also known as sustainable bonds or green bonds, are debt instruments issued by governments, corporations, or other organizations to fund projects with positive environmental, social, and governance impacts. “You are able to crowd in a lot more bond investors which should be able to give a repo effect in terms of making the market more vibrant, and encouraging other issuers to come, and also encouraging other investors to pump in more money.” “BRD is looking to raise Rwf150 billion in the next five years which should provide some supply catalytic movement for the local bourse, and we want other issuers to see that it is possible to have sustainability issuances at this scale offered to the market.” An opportunity despite hard times The issuance, Kisoso maintained, underpins the opportunity for local issuers to issue in local currency and hedge themselves from some of the devaluations in the local currency driven by US dollar interest rates. “BRD has chosen a local currency issuance given the high interest rates and by this it diversifies away from the usual borrowing which has been predominantly hard currency.”
