Bahrain Eyes 10 Year Bond

The Arab state will need to attract conventional rather than Islamic investors due to the lack of sukuk.

Bahrain, the Gulf Arab state hit by ongoing social unrest, plans to issue a benchmark-sized 10-year dollar bond this week, lead arrangers said, after testing investor appetite in roadshows that conclude on Tuesday.

Initial price guidance for the issue, which appears to be a single-tranche deal, was at a spread of 462.5 basis points over midswaps.

At current swap prices, that equates to a coupon of 6.375 per cent; 10-year midswaps were quoted at 1.75 per cent on Tuesday.

Bahrain had initially looked to sell a $1-billion conventional bond at the beginning of 2011 but was forced to postpone plans due to political unrest in the country.

Analysts have said the need to attract conventional investors with the new bond, rather than Islamic investors facing a very limited supply of sukuk, meant Bahrain would have to be fairly generous in pricing the debt.

Arranging banks said a bond issue may follow this week.

No specific details about size were provided, but benchmark-sized is normally understood to mean at least $500 million.

J.P. Morgan Chase, Citigroup Inc, Standard Chartered Plc and Gulf International Bank are mandated arrangers for the deal, which will be a conventional issue and structured under a 144a-compliant format, open to U. S. investors.

A 10-year issue should also appeal to long-term institutional investors in the West; the traditional sweet spot for regional investors is usually only a five-year tenor.

Bahrain’s last bond issue was a $750 million 7-year Islamic bond, or sukuk, which was priced to yield 6.273 per cent.

Market conditions are widely believed to be more conducive for another debt markets outing now. The 7-year sukuk was yielding 4.8 per cent on Tuesday, indicating there is demand for the paper.

Bahrain’s credit default swaps or the cost to insure its debt against default, were bid at a midspread price of 352.6 basis points on Tuesday, about 10 basis points tighter than the beginning of June, according to Thomson Reuters data.