Bahrain plans to sell dollar bonds to plug budget deficit

Bahrain started marketing a three-tranche dollar bond to help plug one of the widest deficits in the region.

The Gulf Arab kingdom is selling benchmark-size seven-year debt, 12-year securities and/or notes maturing in 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.

Despite a $10bn bailout package pledged by its wealthier neighbours in 2018, Bahrain’s public finances have been under strain from the twin shock of the pandemic and lower oil prices. The International Monetary Fund projects Bahrain’s budget deficit to be at about 9.2 per cent of gross domestic product this year.

“They are coming because they need to continue to fund fiscal deficits,” said Abdul Kadir Hussain, the Dubai-based head of fixed-income asset management at Arqaam Capital. “There is appetite for non-investment grade credit as people are chasing yield.”

The smallest economy among the six Gulf Cooperation Council members is taking advantage of relatively low borrowing costs, after Oman sold $3.25bn of debt last week. Bahrain’s bonds returned 6.5 per cent in the fourth quarter, the most among regional peers after Oman, according to Bloomberg Barclays indexes. Both countries are rated junk by the three major credit assessors because of their precarious public finances and strained reserves.

Uncertainty surrounding US President-Elect Joe Biden’s stance on key allies in the region may also have prompted both countries to sell debt before his inauguration on Wednesday, said Todd Schubert, head of fixed-income research at Bank of Singapore Ltd.

“The timing may not be coincidental,” Schubert said. “We do not know what the Biden’s administration view will be on the Gulf and the wider Middle East, other than it will likely be much different than Trump’s.”

Bahrain hired Bank ABC, Citigroup, Gulf International Bank, HSBC Holdings, JPMorgan & Chase Co., National Bank of Bahrain, and Standard Chartered as joint lead managers and bookrunners for its offering.