Gov’t considers issuing corporate bonds to fund state-owned enterprises
The proposal, however, faces significant hurdles, chief among them being the lack of credit ratings for most state enterprises, a key requirement to create investor confidence
KAMPALA, May 13, 2025 –– Government is exploring plans to issue corporate bonds in the upcoming financial year as a strategy to raise capital for state-owned enterprises, and to rejuvenate the country’s underperforming corporate bond market.
The proposal, however, faces significant hurdles, chief among them being the lack of credit ratings for most state enterprises, a key requirement to create investor confidence.
Proceeds from the bond issuance will be channelled into long-term, government-approved projects aimed at easing the growing fiscal burden on the state. Priority sectors include transport, energy, education, health, and science and technology.
According to the National Budget Framework Paper for FY2025/26–FY2029/30, proposed beneficiaries include the National Water and Sewerage Corporation [NWSC], Uganda Development Bank [UDB], and Uganda Development Corporation [UDC].
Although detailed terms of the proposed bonds are yet to be made public, it is understood that NWSC is grappling with funding gaps as it seeks to expand safe water coverage in urban areas. Meanwhile, UDB is in need of additional capital to finance long-term ventures in manufacturing, education, healthcare, and agriculture.
NWSC currently manages over 500,000 water connections countrywide. UDB received a Shs 1 trillion capital injection from the government in 2020 to support small businesses impacted by the COVID-19 pandemic. This funding originated from a US$ 491 million loan provided by the International Monetary Fund [IMF], and was also used to support the health sector and provide welfare grants to affected communities.
UDC has invested in projects such as a fruit juice processing plant and the Atiak Sugar Factory. The latter has been plagued by delays and inefficiencies, raising concerns about the performance and accountability of publicly funded ventures.
Interest rate pressures and investor confidence
One of the key challenges to the corporate bond initiative is the recent rise in interest rates on treasury bills and government bonds, which serve as benchmarks for pricing corporate bonds. Financial experts note that yields on these instruments have risen to between 12 percent and 18 percent in 2025, driven by subdued economic growth, declining tax revenues, and reduced donor funding.
While UDB secured a foreign credit rating last year, neither NWSC nor UDC has obtained a credit rating for their commercial operations. This poses a major obstacle, as credit ratings are crucial indicators of an entity’s ability to meet its debt obligations and are essential for attracting investment.
Paul Bwiso, Chief Executive Officer of the Uganda Securities Exchange explained that corporate bonds are typically priced relative to the yield of the 182-day treasury bill. He suggested that the government may consider capping bids on these bills to help manage the yield curve for corporate bonds.
Bwiso added that a corporate bond issued by a government-backed enterprise could still appeal to investors, provided the entity has strong growth potential and adheres to sound corporate governance standards. Government guarantees, he noted, could help compensate for the absence of formal credit ratings.
Investor considerations and market history
Investors considering corporate bonds issued by state entities will need to weigh several economic factors, including GDP growth, inflation, public debt levels, and tax revenue performance. The government debt yield curve remains a particularly sensitive barometer for borrowing costs and investor sentiment.
In the past, the USE has hosted several successful corporate bond issuances, including from the East African Development Bank [EADB], African Development Bank [AfDB], Housing Finance Bank Uganda, and Stanbic Bank Uganda. These bonds have since matured. The most recent private debt issuance was a US$ 30 million bond by Kakira Sugar in 2013, which carried a 13 percent annual interest rate and matured in 2023.
Patrick Birungi, Executive Director of UDC, welcomed the move, describing the corporate bond initiative as a long-overdue tool for raising capital for productive investment rather than consumption.
“Compared to our neighbours’ debt levels, Uganda has less to fear regarding new borrowing arrangements,” Birungi said, reinforcing the government’s position that corporate bonds could be a sustainable financing alternative if well-structured.
https://thecooperator.news/finance-ministry-mps-agree-on-next-budget/
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