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Bahrain‘s new bond/sukuk combo – a good test of investor appetite?

Abu Dhabi, 13 September 2017

The Kingdom of Bahrain completed its investor roadshow in the UK, Asia, the Middle East, and the US yesterday and released the initial price talk this morning for its RegS/144A US$ benchmark multi-tranche transaction as below.

* 7.5-year US$ Benchmark Sukuk @ 5.625% area
* 12-year US$ Benchmark bond @ 7.250% area
* 30-year US$ Benchmark bond @ 7.875% area


Bahrain as a credit is not new to international investors - it is indeed a regular issuer in the international markets. Even though it has the weakest balance sheet strength among the GCC sovereigns, it is quite popular among investors. For example, its last debt offering, a $2bn dual-tranche in October last year, was 3.5 times oversubscribed.

This latest deal however we believe is a good test of investor appetite given that
1- It is the first public deal after the Qatar crisis that started on June 5th;
2- Bahrain has been downgraded deep in to junk territory by rating agencies with negative outlook; (Moody’s: B1/Neg; S&P: BB-/Neg; Fitch: BB+/Neg); and
3- Credit spreads have widened for the sovereign and some other GCC sovereigns per se in past three months.

We think the IPTs look generous at the moment which offers some good premium to the existing curve and some other sovereign bonds from the peer group (please see the chart on next page), although some tightening can be expected subject to demand.

However, what is worth watching is the final pricing the sovereign offers in order to make the deal attractive to overseas investors as it needs to tap the market at regular intervals due to its financing needs. Moreover, the total amount Bahrain manages to print and the orderbook size would be a good barometer of investor perception and appetite for GCC credits post the Qatar crisis.

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Bahrain‘s new bond/sukuk combo – a good test of investor appetite?

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