Bahrain is marketing an international issue of US dollar-denominated Islamic bonds, but is not proceeding with a proposed conventional bond sale because of the pricing demands of some investors, banking sources said on Wednesday.
The kingdom started meeting investors last week ahead of its planned international debt issuance. It was considering making a long seven-year sukuk issue, and also an issue of 12- or 30-year conventional bonds, or both, depending on market conditions, documents from the banks leading the deal showed.
On Wednesday, Bahrain gave initial price guidance in the 7 per cent area for the sukuk, documents from the banks showed, but they made no reference to the conventional bonds, and a banker involved in the deal confirmed to Reuters that the conventional tranche was no longer planned.
Bahrain’s central bank and government information office did not respond to telephone calls and emails seeking comment.
The sukuk issue will be of benchmark size, which is commonly taken to mean at least $500m, the documents showed. The conventional tranche had also been expected to be of benchmark size.
Its finances strained by low oil prices, Bahrain is rated junk by the three major credit rating agencies, but it has so far borrowed comfortably from international markets because investors believe it can count on support from its wealthier Gulf neighbours, particularly Saudi Arabia.
In recent months, however, some investors have become more concerned by Bahrain’s mounting debt levels and the impact of rising US interest rates on its debt. They have begun to demand an explicit statement from Bahrain on its expectations for aid before they commit fresh money, fund managers in Europe and the Gulf said.
At the recent meetings with investors, Bahraini officials were asked about the prospects for aid but did not give specific answers, according to fund managers who attended the meetings.
Bahrain may find it easier and cheaper to sell sukuk than conventional bonds because of unsatisfied demand among Islamic funds and other institutions which only invest in sharia-compliant instruments.
Bahrain mandated BNP Paribas, Citi, Gulf International Bank, National Bank of Bahrain and Standard Chartered to arrange the bonds. It issued its latest international bond last September, raising $3bn and receiving investor orders in excess of $15bn.