Bahrain has launched direct sales of local currency government debt through its securities exchange, in an effort to broaden the investor base for its debt as sliding oil prices put state finances under pressure.
Bahraini and non-Bahraini investors, both individuals and institutions, can now buy government bonds and sukuk from the primary market via licenced brokers at Bahrain Bourse, the bourse said, adding that it was the region’s first such system.
Previously, government debt was mostly sold to a group of qualified banks which could then sell the debt on to other investors, although little secondary market trading took place.
The new system is part of efforts by the central bank and the bourse to develop Bahrain’s capital markets and increase their contribution to economic development, the bourse said.
The system is being used for the first time for a sale of BD100 million ($265 million) of 10-year sukuk with the ijara format and an annual return of 5.50 per cent. Subscriptions through brokers began on Sunday and will end on Wednesday.
To encourage retail investors, the bourse has set a minimum subscription of 500 dinars; any subscriber applying for BD10,000 will be guaranteed that amount, while the remainder of the issue will be allocated on a pro rata basis.
Bahrain’s state finances are weaker than those of its Gulf neighbours, and it is likely to need to step up its debt issuance if oil prices stay low; attracting more investors and facilitating secondary market trading may aid this.
Last September, when Brent crude was at $97 a barrel, analysts surveyed by Reuters projected the kingdom would run a state budget deficit of 5.7 per cent of gross domestic product in 2015. Brent is now at $49, slashing Bahrain’s oil revenues, so it is likely to face a much bigger deficit.