Bahrain could offer premiums to issue multi-tranche bond

DUBAI / Reuters

The government of Bahrain is expected to offer investors significant premiums over its outstanding debt when it issues bonds this week because of growing concern over its
finances in an era of cheap oil, portfolio
managers said.
A triple-tranche issue may follow, including a long seven-year sukuk issue maturing in 2025, a 12-year conventional bond and, subject to investor interest, a 30-year conventional bond, investors familiar with Bahrain’s thinking told Reuters. They said Bahrain’s issuance this week could total $1.5 billion to $2.5 billion. Bahrain’s central bank did not
respond to a request for comment.
Bahrain is the only one of six oil-exporting states in the Gulf Cooperation Council that is rated junk by all three major credit rating agencies, so it will have to be generous in pricing. All three agencies have negative outlooks on Bahrain.
In July, Moody’s downgraded Bahrain by two notches to B1, saying the country lacked a clear and comprehensive strategy to bring its state budget deficit under control.
Meanwhile, a dispute between Saudi Arabia, the United Arab Emirates and Bahrain on the one hand and Qatar on the other, which erupted in June as the three states accused Doha of backing terrorism, has unsettled
investors in the region.
“In addition to internal factors such as the country’s rating downgrade, geopolitical uncertainty – regional and global – will also weigh a bit on investors’ minds and will demand a price premium, too,” said Apostolos Bantis, credit strategist at Commerzbank.
Two Dubai-based portfolio managers estimated Bahrain’s long seven-year sukuk would offer a premium of around 20 basis points to its existing 2024 sukuk, which it issued last year and which now yields around 5.0 percent. Around 10 bps of that premium would be due to time decay, but the other half would be due to funds’ changing views of Bahrain’s fiscal plight.
An Abu Dhabi-based manager said the
premium might be wider, at 50 bps.
He calculated the mid-point between spreads over US Treasuries of Bahrain’s 2024 sukuk and Bahrain’s 10-year conventional bond maturing in 2026, then subtracted
13 bps to account for unsatisfied demand
for sukuk among national and regional
Islamic investors.