Bahrain sold $2 billion in a
dual-tranche bond issuance comprising 4-1/2-year sukuk, or Islamic bonds, and
10-year conventional bonds, a document showed on Thursday.
The deal marks a step
towards revival for the region's battered debt market. It is the first
sub-investment grade public bond issuance from the Gulf since a massive
sell-off of debt there in the wake of a crash in oil prices and the spread of
the new coronavirus.
The Gulf state sold $1
billion in sukuk at 6.25% and $1 billion in 10-year bonds at 7.375%, after
receiving more than $11 billion in combined orders for the notes. It tightened
its pricing after it began marketing the notes with an initial price guidance
of 6.625%-6.75% for the sukuk and around 8% for the 10-year notes.
The small oil producer,
which was bailed out in 2018 with a $10 billion aid package from its wealthy
Gulf neighbours to avoid a credit crunch, needs to bolster its finances to plug
its budget deficit.
"The demand showcases
strong investor appetite for Bahrain risk even though the landscape of
unconditional support from its GCC neighbours has come under increased
scrutiny," a Dubai-based fixed income strategist said.
"Pricing leaves around
30 bps on the table for both the tenors for the investors, and the securities
should do well in the secondary market," he added.
In a presentation for
investors seen by Reuters, Bahrain said it expects a
deficit of 4% of GDP this year, down from 4.7% last year. The International
Monetary Fund has said it expects Bahrain's fiscal deficit to jump to 15.7% of
gross domestic product this year from 10.6% in 2019.
The fixed income strategist
said the discrepancy was because the figures Bahrain gave were estimates from
end-February, meaning they did not factor in the oil price crash and the
coronavirus pandemic's impact.
Jason Tuvey, senior emerging
markets economist at Capital Economics, said in a research note on Thursday
that Bahrain would likely need more financial support in the coming years
despite the debt sale.
"The collapse in oil
prices means that Bahrain will probably have to draw down the (Gulf) support
package at an even faster pace and there is growing prospect that the level of
financing will need to be increased," he said.
"Bahrain's close
political ties with Saudi Arabia mean that this will almost certainly be forthcoming
and this is a key reason why we expect the dollar peg to remain intact."
Bahrain hired Bank
ABC, Gulf International Bank, HSBC, JPMorgan, National Bank of Bahrain and Standard Chartered
to arrange the deal, sources have said.