Bahrain recently issued sukuk and bonds worth $2 billion. The issuance consists of sukuk worth $1 billion at 6 percent for a period of 7 years. It also issued bonds worth $1 billion at 7.5 percent for 12 years. The kingdom received orders exceeding $14 billion.
The offerings were managed by HSBC, JP Morgan, National Bank of Bahrain, and Standard Chartered. The last time Bahrain entered the international bond market was in August when it sold debt instruments worth $1 billion for 10 years.
Decreasing return rates
Bahrain’s initial offering witnessed strong investor demand, allowing the kingdom to tighten pricing by lowering yields. Therefore, Bahrain reduced the seven-year sukuk to 6 percent from the initial estimate of about 6.625 percent. Moreover, Bahrain sold the 12-year bonds at 7.5 percent, against the earlier guidance of 7.625 and 7.75 percent, down from about 8 percent. Notably, the $14 billion in orders, excluding co-management interests, was skewed towards Islamic bonds.
With this offering, Bahrain follows the path of countries like Mexico, Brazil, and Saudi Arabia, which issued bonds worth $12 billion last month. Therefore, it also benefited from the decline in U.S. revenues since October to help finance its fiscal deficit.
Read: MENA IPO market soars with 48 IPOs in 2023, reaping $10.7 billion
Bahrain’s economy
Bahrain relies heavily on oil production and is one of the most economically vulnerable countries in the Gulf region. It faced financial pressure during the COVID-19 pandemic despite receiving a $10 billion rescue package from neighboring countries in 2018, including Saudi Arabia and the UAE. In addition, Standard & Poor’s Global and Fitch Ratings rate Bahrain at B+. This classification is among the four unfavorable levels. However, its bonds trade well below the B-rated emerging market average.
The International Monetary Fund also said that Bahrain can achieve balance in its budget in 2024 if oil prices average about $97 per barrel. However, this level is much higher than the average price of Brent crude since the beginning of this year, which is less than $80 per barrel.
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