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Bahrain Eyes Bond Market Return, Picks Banks

Bahrain Eyes Bond Market Return, Picks Banks

Bond will target U.S. institutional investors; Will aim to raise $1.25 bln over 7 or 10 years -IFR; Mandates JP Morgan, Citi, Stanchart, GIB - sources; Bahrain faces budget deficit in 2012

May 9, 2012 9:12 by

Bahrain plans a sovereign bond targeting the U.S. market by the summer, its central bank said on Tuesday, in a sign the Gulf state is confident it can attract international investors in the face of social unrest and budget pressures.

It has mandated JP Morgan, Citi, Standard Chartered and Gulf International Bank to arrange the bond, three sources familiar with the matter said.

The bond would be a conventional issue and not an Islamic one, two of the sources said.

A year of clashes between protesters from the country’s Shi’ite majority and security forces has weighed on the small non-OPEC oil exporter, eroding capital parked in its mutual funds.

Meanwhile, fiscal handouts have raised the average oil price the kingdom needs to balance its budget to near-market levels.

“Bahrain plans to issue a sovereign bond, with the issue size and tenor to be announced later,” a central bank spokesperson told Reuters.

The debt will be issued under a regulatory framework allowing investment by institutions in the United States and other foreign countries. The central bank provided no further details.

“There’s a lot of liquidity out there chasing emerging market debt, and specifically emerging market sovereign debt,” said one regional banker, requesting anonymity.

A key U.S. ally that hosts Washington’s Fifth Fleet, Bahrain has been in turmoil since a pro-democracy uprising began last year after successful revolts in Tunisia and Egypt.

IFR Markets, a Thomson Reuters news and information service, reported earlier on Tuesday that Bahrain planned to sell a $1.25 billion bond with a maturity of seven or 10 years, no later than the second week of June.

A senior government source told Reuters in April that a bond was not imminent, adding that Bahrain was a regular issuer and that the political situation in the kingdom would not negatively influence investor appetite.


Last November, it drew $1.8 billion in demand for a $750 million, seven-year sukuk, or Islamic bond, priced to yield 6.273 percent – its first sovereign issue since March 2010. The order book was made up mainly of Middle East investors, helped by its investment structure.

If the size and the timing of the new bond is confirmed, it would take the state’s borrowing to as much as $2 billion in just over six months.

Bahrain had initially looked to sell a $1 billion conventional bond at the beginning of 2011 but was forced to postpone due to its worst political turmoil since the 1990s – eventually suppressed with the help of martial law and Saudi troops.

Clashes between protesters and riot police have escalated again in recent months.

Five-year Bahrain credit default swaps, which reflect how investors assess the risk that a country will not be able to pay back its obligations, have been easing gradually this year to around 361 basis points on Tuesday from a peak of 408 points at the end of January, according to Markit data.

The turmoil prompted Bahrain, whose credit rating has been downgraded by up to three notches in the last year, to boost government spending by 22 percent from its original 2011 target to 3.1 billion dinars ($8.2 billion), though robust oil prices have helped ease budget strains.

For 2012, the government had forecast a deficit of 8.8 percent of GDP due to slightly lower spending, which at 3.1 billion dinars was still 14 percent higher than the original 2012 plan.

Bahrain, a regional financial centre, is rated ‘Baa1′ by Moody’s and ‘BBB’ by Standard & Poor’s and Fitch.

It needed an average oil price of $114 per barrel in 2011 to balance its budget, the highest in the Gulf, up from just $80 in 2008, the International Monetary Fund has said. Brent crude traded around $112 per barrel on Tuesday following a recent run of sharp declines.

Analysts polled by Reuters in March expected the kingdom to post a budget deficit of 3.7 percent of GDP in 2012.

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