Junk-rated Bahrain to brave markets with dollar bond issues

The small oil producer needs to bolster its finances to plug a widening coronavirus-induced budget deficit.

Bahrain is seeking to raise cash amid the new coronavirus outbreak and historically low oil price [File: Hamad I Mohammed/Reuters]
Bahrain is seeking to raise cash amid the new coronavirus outbreak and historically low oil price [File: Hamad I Mohammed/Reuters]

Bahrain has hired banks for a potential dual-tranche dollar bond issue, banking sources told Reuters News Agency. The junk-rated Gulf oil producer is seeking to raise cash amid the new coronavirus outbreak and historically low oil prices.

Bahrain’s plans mark a step towards recovery for the Gulf debt market. Sub-investment grade issuers had so far been unable to tap international investors due to huge market volatility starting in March that followed tumbling oil prices and the spread of the coronavirus.

Bahrain’s finance ministry did not immediately respond to a request for comment.

The small oil producer needs to bolster its finances to plug a widening budget deficit due to historically low oil prices. The International Monetary Fund has said Bahrain’s fiscal deficit is expected to jump to 15.7 percent of gross domestic product this year from 10.6 percent in 2019.

In a presentation for investors seen by Reuters, Bahrain said it expects a deficit of 4 percent of GDP this year, down from a 4.7 percent deficit last year.

The country was bailed out in 2018 with a $10bn aid package from wealthy Gulf neighbours Saudi Arabia, Kuwait, and the United Arab Emirates to help it avoid a credit crunch in a deal tied to fiscal reform.
Bankers and analysts have told Reuters it may need additional Gulf aid as soon as this year.

Bahrain has hired Bank ABC, Gulf International Bank, HSBC, JPMorgan, National Bank of Bahrain and Standard Chartered to arrange investor calls on Wednesday, to be followed by a benchmark deal subject to market conditions, the sources said.

Benchmark bonds are generally upwards of $500m.

The planned deal consists of 4.5-year sukuk, or Islamic bonds, and 10-year conventional bonds, three sources said on Wednesday.

A fund manager in the region, who asked not to be named, said he expected Bahrain to pay around 50 basis points, or possibly more, over its existing bonds.

“I think this is the first single-B sovereign in the world to come to market since the COVID-19 crisis. So, it really is a price discovery exercise,” he said.

Bahrain took a one-billion-dollar loan from banks to pay down $1.25bn in bonds that matured on March 31, sources have said, after it scrapped bond plans earlier this year due to adverse market conditions.

The country expects a further drawdown of $1.76bn this year from the $10.25bn aid package that was provided by its Gulf allies in 2018, the investor presentation showed.

That package was provided with a zero percent interest rate and a maturity of 30 years per drawdown, the document said.

Source : Reuters

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