Rwanda Makes History with $10 Million Green Bond Issuance for Prime Energy PLC

First green bond, the first story on the show today, an exclusive interview with Siongo Kisoso, Managing Director of BK Capital, following the landmark issuance of Rwanda's first green bond, valued at $10 million, for Prime Energy PLC. Thank you for joining us, Siongo. No, thank you for having me and a pleasure to discuss Rwanda's first green bond. Absolutely. That will be listed soon in the Rwanda Stock Exchange. Absolutely. And very exciting times. So just, you know, just to start this off, give us a quick brief on what the bond structure looks like. What will it finance? More importantly, considering it's a green bond, what's the project behind it? And also the dual tranche, the fact that there is, you know, you can buy in Rwandan franc, USD, what's happening there? Fantastic. Thanks for the question. So I think first I'll start with who is issuing the bond. The bond is being issued by Prime Energy PLC. Prime Energy PLC is an independent power producer that focuses on hydro power plants. They have an installed capacity of 7.8 megawatts, which they generate across four power plants here in Rwanda. These power plants are under concession agreements. They are leased from the government for a period of 25 years, and there are four of over 20 plants that are leased under such arrangements. Prime Energy sells the power to EUCL. So that is a state utility company that purchases and distributes power to Rwandans. So in terms of the issuer, that's who they are. They were incorporated in 2016 and have been in existence since then. So this first green bond, which the offer opened on September 26th and runs all the way till October 17th, is for an amount of 9.5 billion franc. And the proceeds will go to two things. One, Prime Energy PLC is developing a new hydro plant called Rukarara 6. Rukarara 6 has an installed capacity of 9.8 megawatts, and it's a run on river hydro plant, which qualifies it as a renewable green energy. So that's one use of proceeds. 7.5 billion of the 9.5 will go towards that, and 2 billion will go towards providing maintenance capex for the four plants. So hydro plants every couple of years have major renovations, and the 2 billion will go to support this. So that's a bit about the issuer, why they're raising money. In terms of the structure, it's a seven-year bond. It's going to be amortizing in nature, which means that principal will be paid over the life of the bond. This bond has two tranches. So investors can opt for a fixed rate Rwanda franc tranche, which has a coupon rate of 13.75 percent, which is a premium of approximately 1.55 percent over the equivalent government bond, which would be the seven-year bond. And there's a second option to invest in a USD linked tranche. So this will be priced at U.S. dollar rates at a price of 9.5 percent. The investment will be made in franc. Investors will get a synthetic USD repayment schedule based on the rate of the day, and the fixed payments every six months will be in franc on the rate of the day. So it's two innovations in this bond issuance. First bond, really one of many as Rwanda tries to establish itself as a sustainability finance hub. And also there's a USD linked tranche, which is a first of its kind for a listed instrument. Surely. Yeah. It makes it more interesting for investors of different appetite and also different regions. So that is something very keen about this bond. But one thing to look back, this is not a new subject. This is not something this is not new news, actually. This was this bond was originally halted in March. If you can tell us what challenges you had to overcome to successfully relaunch this and what was the challenge? What was the problem that was halted? So in terms of timelines, we got CMA approval in March based on the documentation that had been submitted. And the initial intention was to make it available and listed to the public within that period of Q1 2024. But there were discussions ongoing regarding the final tariff RUKARARA 6 and some other elements that were key to the business model. So in the best interest of investors, we opted to finalize some of these discussions and offer the bond when all the contracts have been signed, etc. So we're happy to announce that the RUKARARA 6 tariff and PPA have been concluded. Discussions on the concession agreement have been concluded and agreements executed. And there was an outstanding balance, which was intended to be paid in June of 900 million. This was for the initial investment loan that Prime took in 2016 to rehabilitate the plants, which they did and increased production capacity by 1.6. So that's been fully paid off and we're in a good position. And we have seen a lot of interest coming in from local investors. Since this is not something new, I mean, it's been talked about for about six months now. What is the scale and where is it coming from? What kind of investor interest are you seeing? Also, if you don't mind going back to the USD and the Rwandan franc subject, who is taking up what? Which is more attractive to investors? So in terms of the tranches, the USD linked tranche was designed for international investors. So a group of investors who invest in frontier markets, but have USD returns and typically, they would hedge for this sort of investment. So given the returns of Prime in USD, that's the nature of PPAs here in Rwanda. We thought it fit to have a USD tranche really to attract investors looking for exposure into green bonds, investors looking for exposure into infrastructure in frontier markets, and in particular, Rwanda. The Rwanda franc tranche, naturally, most of the appetite is local. And from a local perspective, institutional investors are taking interest in the tranche for a number of reasons. One, infrastructure as an asset class, as stable returns is a good inflation hedge. If you look at this business model, the offtaker is the government. So from an offtake risk, you have a 25-year contract, the offtake is the government. So there's low risk from that perspective. For investors trying to get more exposure into ESG assets, this allows you to increase your offering from a risk perspective. Besides the offtake, the bond is assignable to bondholders in the event. I mean, the contracts, which are the PPA and the concession agreement, are assignable to investors in the event of a default. The principal will be paid over the seven years, given it's an amortizing bond, and there are a number of financial covenants to ensure that the issuer remains prudent throughout the life. So if you look at the features of the bond, the credit risk is quite low. The industry is attractive. And for that reason, we're seeing institutional investor interest, and the bond is priced at a premium. So you're able to generate returns higher than your government bonds. So I think those are the two types of investors. Excellent. Now, Siongo, actually, I was going to ask you that how do you approach, what was the approach behind managing the risk of when you create an innovative instrument for a frontier market, like you called it yourself, or work with companies that are still new, you know, have barely a decade worth of portfolio in this sector, but you explained that already. So going back to the question of actually developing infrastructure, raising capital, developing renewable infrastructure by raising capital through green bonds, do you think after considering the uptake that you are expecting for this bond, do you see this becoming a trend in Rwanda, something to really stick for all its renewable energy needs or infrastructure needs? It would be difficult to focus whether it would be a trend. But, you know, if you look at the continent, across, you know, all the countries, about 100 billion missing in infrastructure finance every year. And then the same would reflect in Rwanda, of course, at a smaller scale. So capital markets do offer issuers or, you know, parties that need capital a means to access it. And with this green bond, you know, the hope is we can catalyse other green bonds for energy-friendly infrastructure needs. Right, absolutely, Siongo. You know, the reason why I ask this question is... It's a process that's doable, it's a pricing that's friendly. So we do see an opportunity and hope this could be one of many, given the gap that's there in the market. Absolutely, yes, it could really fill the gap and provide the access that has not been the norm so far. But, you know, the reason why I ask this question is because the Rwandan taxonomy, green taxonomy, is an evolving landscape. And one of the key aspects of green bonds or even sustainability bonds is transparency. So how do you, as BK Capital, when working with companies like Prime or any other, actually, for that matter, in this evolving landscape, how do you see yourself aligning with the needs of the framework? And, you know, how does that change the structure or the paradigm that a green bond operates in? So this particular green bond, you know, has gotten the title, has gotten the credentials, because the framework with which it was developed is fully aligned with the International Capital Market Association green bond principles. And there are a number of elements that have to align, such as the use of proceeds, the governance through which, you know, these proceeds are monitored, the reporting that's done post-investment and on an annual basis on the use of investment, and how much GHG or greenhouse gases have been emitted. And all these elements in our, in the framework of Prime Energy align with the International Capital Market Association principles. And this has been verified by a third party. So we call that a second-party opinion. And this was done by IBIS. And both the green bond framework and the second-party opinion, which confirms alignment with the framework, are available in the prospectus and are on the website of Prime Energy. If you look at the Rwanda green taxonomy, it was developed, you know, to have alignment with international standards. So even as Rwandan issuers come to market, you know, they can crowd in international capital and, you know, there's credibility and no risk of greenwashing. And this bond meets all these standards. Well, that is very good to know. Now, conversations with you, Siongo, can always go on for much longer, because it's always a pleasure to discuss these things with you. But time is of essence. And so we'll have to let go of you today. But congratulations once again on that green bond with Prime Energy, PLC.

CNBC Africa had an exclusive interview with Siongo Kisoso, Managing Director of BK Capital, following the landmark issuance of Rwanda's first green bond, valued at $10 million, for Prime Energy PLC. 

BK Capital arranges $10mn green bond for Prime Energy

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BK Capital arranges $10mn green bond for Prime Energy

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