By Paul Price
"Let us break their bonds asunder, and cast away their cords from us." Psalms 2:3
Most Americans would have a hard time locating Rwanda on a map. Here is a visual aid.
Investors would be smart to adhere to this biblical advice. Last week Rwanda, a tiny speck of an African nation, issued $400 million with an interest rate of 6.625% in U.S. dollar denominated paper. The order book was 8.5 times oversubscribed.
The 10-year bond was sold at a yield of 6.875%. The bonds dropped off slightly early on Friday before finishing up the week near par.
Fitch rated the bonds at "B."
What chance does the country have of repaying this principal at maturity? The Wall Street Journal noted that foreign aid accounts for about 38% of the country’s budget. That suggests that 100% of the debt just incurred can be payable only due to gifts from American and European politicians.
Ordinary citizens are thus funding involuntary transfers of their hard-earned money to Rwandan officials. Whatever is left after deductions for graft and corruption will be used, at least temporarily, to pay generous interest to wealthy investors. There is zero probability that Rwanda could pay even the interest, let alone repay the principal a decade hence without this Ponzi-like, foreign aid financing.