Rwanda will use part of its $620 million raised from its second Eurobond issued on Tuesday to pay back part of its $400 million Eurobond that was expected to retire in 2023.
This is meant to reduce pressure on government coffers that have come under intense pressure due to pandemic related expenditures over the last 12 months.
The latest issuing makes Rwanda the second country in the region after Kenya to issue another Eurobond to retire a maturing one.
The country has taken advantage of the low interest environment in international financial markets making access to capital relatively cheap.
For instance, the latest 10-year Eurobond close to three times against investor interest of ($.6 billion) attracted a coupon rate of 5.5 percent, lower than the 2013 rate of 6.625 percent, and Kenya’s 6.3 percent.
“We are pleased with 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,” said John Rwangombwa, Governor of the National Bank of Rwanda, in a Press Statement.
The latest issue will ease debt servicing burden on the government which has aggressively borrowed over the last 12 months to contain the pandemic amid revenue shortfalls, with public and publicly guaranteed debt estimated to have increased from 62.9 percent of GDP in 2019 to 71 percent in 2020—about 10 percentage points higher than pre-crisis projections—and is expected to rise to 84 percent of GDP in 2023, according to the latest estimates by the World Bank.
While the largest share of Rwanda’s debt is concessional, with the country being rated low risk before the Covid-19 pandemic, it’s risk of external debt distress was recently downgraded from low to moderate in the latest 2020 IMF/World Bank debt sustainability analysis.
On July 28, 2021, International Credit ratings agency – Fitch Ratings assigned Rwanda's proposed senior unsecured US dollar denominated bonds a 'B+' rating.
While Fitch affirmed Rwanda's Long-Term Foreign- and Local-Currency IDRs at 'B+', it revised the Outlook to Negative from Stable on July 21, 2021 as part of the regular review of Rwanda's ratings.
However, with the latest borrowing, Rwanda might have mitigated the risk of being further downgraded were another major shock to hit the country.
The government says the rest of the funds will be used to finance priority projects that will support recovery from the economic downturn triggered by the Covid-19 pandemic. It will also finance strategic investments in health and in agriculture to enable export growth, safeguard environmental protection and mitigate adverse effects of climate change.