Rwanda is banking on investors in East Africa to take up its Rwf12.5 billion ($18.3 million) bond, in line with Kigali’s renewed commitment to revive the bond market to raise money for development projects.

A delegation of senior Rwandan government officials — led by the Governor of National Bank of Rwanda (BNR) John Rwangombwa — was in Nairobi on Friday to market the bond, which matures in 2017. The lowest denomination investors will be allowed to buy will be $166.

Details released by the BNR show that the bond will be available to domestic and regional retail and institutional investors, effectively opening up a stream of investors from the EAC.

As for foreign participation, only institutional investors and fund managers will be targeted due to the size of the issue, “which is small by international standards,” said BNR.

“This is just the beginning and these quarterly issues will be targeting not only the East African market but international investors. It is the first time we are looking at the region and the international market to invest in our bond,” said John Rwangombwa, the BNR governor.

READ: Kigali to float $18.3m bond to cut back on aid

The central bank said domestic preliminary market surveys indicated a huge appetite among local investors while regional investors expressed interest in participating in the local market following the success of the country’s sovereign bond.

Last year, Rwanda successfully floated a debut $400 million Eurobond in an oversubscribed issue. 

READ: Investors scramble for Rwanda’s Eurobond

“The government plans to embark on a Treasury bond programme to boost the capital market development and fund infrastructure projects,” said Claver Gatete, the Minister of Finance and Economic Planning.

Currently, the Rwanda bond market is relatively small and inactive at both secondary and primary levels, compared with Kenya, Uganda and Tanzania.

The Rwanda Stock Exchange (RSE) currently has three government bonds with the longest — a five-year bond — maturing in September 2016. The RSE has only one eight-year corporate bond worth Rwf10 billion ($14.4 million) issued in 2010 by I&M Bank (previously Commercial Bank of Rwanda).

Central Bank of Kenya Governor Njuguna Ndung’u said the launch of the bond marks an important step in the bid by securities markets in East Africa to harness funds in the bloc for investments in key projects.  

“The main reason is the newness of the market. When you start a new market, it takes time to develop products. But, given where we have reached now, we are going to have a continuous (bond issuance) programme going forward with the frequent issuance of Treasury bonds on a quarterly basis,” said Rwanda’s Capital Markets Authority executive director Robert Mathu on Friday at the launch of the bond in Nairobi.

Analysts said the bond should attract large numbers of investors depending on the interest rate, Rwanda’s credit rating and the coupon rate.

The bond will close on February 27 and list on the RSE on March 7. The rate will be market determined with the preference given to the lowest bidder according to Mr Rwangombwa. Yields in past issues have ranged between eight and 11 per cent.

“Interest rates may be higher compared with the Kenyan market. This will attract many regional and foreign investors. Rwandan investors are likely to take the lead because it is an opening for them to trade,” said Eric Munywoki, a research analyst at the Old Mutual Securities.

Ministry of Finance data shows that Rwanda’s total public and publicly guaranteed debt is estimated at $2.16 billion, representing 30.2 per cent of the GDP as of June 2013.

The December 2013 Debt Sustainability Analysis published by the International Monetary Fund indicated that Rwanda has a low risk of debt distress and may, therefore, use non-concessional borrowing without unduly affecting debt sustainability.

READ: Go slow on spending, borrowing IMF tells Uganda and Rwanda

The government shelved bond activities on the market in 2011 after issuing a total of Rwf31 billion since 2008. However, stockbrokers say that the appetite on the bond market is still low compared with the interest shown on the equity market.

Kenya and Tanzania also plan to issue Eurobonds. The Kenyan bond set for the first quarter of 2014, is expected to reduce government appetite for local borrowing. However, the growing spending pressures as well as the pick-up in economic activity could put pressure on interest rates.

READ: First $2bn Eurobond set to push down lending rates

In Tanzania, a Eurobond that was expected this year may have to wait until the next fiscal year due to a delay in getting a risk assessment by Citigroup Inc.

Tanzania had planned to issue $700 million of debt in the current fiscal year, which ends in June. The state plans to offer as much as $950 million in Eurobonds in the 2014-15 budget year, if the sale does not take place this fiscal year, according to the country’s central bank.

READ: Govt in fresh plans to list $700m Eurobond

Additional reporting by Joshua Masinde and Scola Kamau