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April 26 (The following statement was released by the rating agency)
Rwanda's debut Eurobond issue will enhance the country's external debt profile, support GDP growth and help attract investment, Fitch Ratings says.
Based on the prospectus, we understand that the proceeds of the Eurobond will partly be used to refinance existing external loans. This will result in lower short-term external debt maturities and increase Rwanda's fiscal headroom. As part of the issuance will be used to pay off existing debt, the net increase in external debt will be USD200m, 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 USD843m, equivalent to 4.8 months of goods imports. 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 (CXR) and tourism for another 14%, while the largest proportion of CXR came from current transfers (49%, mostly grants from international donors and remittances).
We expect real GDP growth to remain robust in the medium term, in line with past performance of 7%-8% a year. The authorities have announced that part of the proceeds of the bond issue will finance investment in strategic infrastructure including the Kigali Convention Centre and a hydropower plant, which should benefit Rwanda's economic development. 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.
Rwanda completed the issuance of the USD400m Eurobond (equivalent to 5.4% of 2012 GDP) on 25 April. It has a 10-year maturity and a yield of 6.875%. The issue was 7.5x oversubscribed, suggesting strong appetite among international investors in search of high yields and diversification towards Africa.
We affirmed Rwanda's rating at 'B' in August 2012. The rating is supported by solid economic policies and a track record of structural reforms, macroeconomic stability and low government debt (23.3% of GDP in 2012; 'B' peers median: 43.5%). The rating is constrained by structural weaknesses including low GDP per capita (USD644 in 2012; USD3,345 median for 'B' rated countries), limited economic diversification and dependence on international donors (38% of budget receipts in fiscal year 2012/13).
Despite some delays in aid disbursements in fiscal year 2012/13, our central scenario is that Rwanda will continue to attract significant budget support flows, reflecting its strong track record in poverty reduction and control of corruption.