26/04/2012 07:59 AST
Bahrain is testing whether it could draw investors into a potential sovereign bond sale, although the issuance is unlikely to be imminent, government and banking sources said yesterday.
A year of clashes between protesters and security forces has been weighing on the non-Opec oil exporter, eroding capital parked in its mutual funds, while fiscal handouts have raised the country’s vulnerability to a potential oil price drop.
“Bahrain sent out RFPs (requests for proposals) earlier this week. There are no mandates yet but they seem to be very serious about tapping the market,” said a banker, who did not want to be identified.
A senior government source told Reuters that the issuance was not imminent despite the requests to banks, adding that the country was a regular issuer and the political situation in the kingdom would not negatively influence investor appetite.
“They tend to give out mandates and wait. There’s no requirement to issue immediately,” another banker said.
Last November, the island kingdom, drew $1.8bn in demand for its $750mn, seven-year Islamic bond, or sukuk, its first sovereign issue since March 2010, pricing it at a yield of 6.273%. The order book mainly went to Middle East investors.
Bahrain had initially looked to sell a $1bn conventional bond at the beginning of 2011 but was forced to postpone plans amid protests.
Another banking source said he believed Bahrain wanted to issue a bond “as a PR stunt to show all is well.”
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 372 basis points yesterday from a peak of 408 points at the end of January, according to Markit data.
“I think perhaps this is a question of getting money in the bank while markets are reasonably decent,” said a London-based analyst, who declined to be named.
Yield on Bahrain’s sukuk maturing in 2018 stood just below 5.0% bid yesterday, up from a low of 4.8% at the beginning of the month but well below this year’s high of 5.7% in mid-January.
The turmoil prompted Bahrain, whose credit rating has been downgraded by up to three notches last year, to boost government spending by 22% from its original 2011 target to 3.1bn dinars ($8.2bn), though robust oil prices have been helping to ease budget strains.
For 2012, the government had forecast a deficit of 8.8% of GDP due to slightly lower spending, which at 3.1bn dinars was still 14% higher than the original 2012 plan.
Bahrain, the regional financial centre, is rated ‘Baa1’ by Moody’s and ‘BBB’ by Standard & Poor’s and Fitch.
Bahrain 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 said on Tuesday. The Fund forecasts that the country’s gross government debt will fall to 31.6% of GDP this year from an estimated eight-year peak of 36.4% in 2011.
Gulf Times
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