Now indebted Rwandan lender to exit 17 firms

The Development Bank of Rwanda (BRD) plans to sell off its assets in 17 companies to pay a Rwf166.7 billion ($186.4 million) debt.

This has pushed the debt-to-equity ratio to 1:3.9, against an optimal 1:3, impacting the lender’s balance sheet and capacity to lend.

BRD now hopes to raise Rwf15.2 billion ($17 million) through the sell-offs.

The bank’s debt has been ballooning after it stopped taking deposits in 2016, as part of its 2016-2020 business strategy, which saw it sell its commercial bank licence to Atlas Mara. It now relies on debt and equity from shareholders to stay in business.

“We are exiting a bank, a tea company and a private equity fund in March,” said BRD’s chief executive Eric Rutabana, without naming the companies.

The BRD is co-owned by the Rwandan government and the Rwanda Social Security Board, a workers pensions body.

However, shareholder equity remains low.

Analysts say rolling back its equity investments to raise capital to pay debt and generate a profit for shareholders reduces the pressure on its capital and will help it to continue lending to key sectors of the economy, that are shunned by commercial lenders.

The EastAfrican has learnt that the lender plans to exit the listed Bank of Kigali where its stake is valued at Rwf1.2 billion ($1.3 million); the Rwanda Investment Group owned by Rwandan entrepreneurs with interests in energy and several other businesses, where its stake is valued at Rwf783 million (875,060) in the full year to December 2017; and the Rwanda Farmers Coffee Company Ltd, a large-scale coffee roasting and packaging facility located in Kigali, in which it had a Rwf156 million ($174,542) stake as of December 2017.

BRD could thus raise Rwf2.5 billion ($2.8 million) from the sale of its shares in the three companies.

“We need to meet the optimum ratio of 1:3. However, this will require shareholders to periodically inject additional equity to match debt, in line with increased investments in the economy, which will favourably position BRD to attract more development financing from lenders,” the bank’s end-of-year report says.

According to the full year report to December 2017, BRD has also lined up Magerwa, an inland container depot; Multi Sectoral Investment Group, an agro company that produces honey, tea and coffee; Mimex, a maize milling company; Kigali City Park, where Century Park is investing in properties; and Rwanda Investment Group, a Rwandan private equity firm owned by entrepreneurs, for sale.

Other targeted companies are Hostel 2020, Prime Economic Zones Ltd, a special purpose vehicle for developing Rwanda’s economic zones, Rwanda Stock Exchange and New Forest Company, a wood processing company.

The bank also plans to sell its stake in Trust Industries, which produces tissue paper, detergents and bar soaps; Rugarama Park Estate Ltd, a joint venture with Shelter Afrique; Crystal Telecom, a special purpose vehicle that manages BRD’s 20 per cent stake in MTN Rwanda; pyrethrum processing company Sopyrwa ; Zinaya Project, a real estate company; and Kivu Murina, a five-star hotel off Lake Kivu.

But Mr Rutaban said that despite the pressure on its capital, the bank will continue to support start-ups to drive economic growth and create jobs as stipulated in the country’s growth strategy.

“We invest for two reasons: To generate returns for shareholders and to support companies with the potential to drive the growth of the economy,” he said.

“If at some point we find that the companies we have invested in have realised their potential and we can generate good returns in that investment, there is no reason why we can’t sell off our stake, as it means that they have grown to have enough cash to not need external support.”

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