Bahrain offers dollar bond, sukuk to plug growing budget gap

Bahrain started marketing a three-tranche dollar bond to help plug one of the most burdensome budget deficits in the world.

The Gulf nation is selling benchmark-size seven-year Islamic bonds as well as conventional debt with a duration of 12 years and/or 30 years, according to a person familiar with the matter, who’s not authorised to speak publicly and asked not to be identified.

Benchmark typically means the equivalent of at least $500m.

Bank ABC, Citigroup, Gulf International Bank, HSBC Holdings, National Bank of Bahrain and Standard Chartered are the lead managers for the sale and will arrange a global investor call on Tuesday.

The announcement marks the kingdom’s return to the international debt market for the first time since May and follows Dubai’s sale of $2bn in bonds after a six-year absence from the public borrowing market.

In May, Bahrain sold $2bn in 10-year notes and 4.5-year Islamic securities, becoming the lowest-rated country to sell dollar bonds since the market hiatus triggered by the Covid-19 pandemic.

Bahrain is under fiscal strain despite a $10bn bailout package pledged by its wealthier neighbours in 2018. The smallest among economies of the six Gulf Cooperation Council members, Bahrain is on course to rack up a deficit that the International Monetary Fund projects will be among the world’s 10 biggest this year at 15.7 per cent of gross domestic product.

Bond yields from the US to Australia have plummeted to all-time lows as the pandemic forced central banks to launch trillions of dollars of unconventional monetary-policy programmes to bolster economies.

Demand by investors for riskier assets has in turn pushed the yield on Bahrain’s $1bn bond due 2030 this month to the lowest level since its pricing in May.