Bahrain looks set to get a vote of confidence from international investors when it offers a 30-year bond worth at least $500 million, in its first sale of such a long tenor.

The kingdom yesterday (September 9) opened books for the US dollar benchmark-sized bond issue with initial price thoughts at a yield in the low six per cent area, and the deal is expected to price today, said a report in the Gulf Daily News (GDN), our sister publication.

Up to now, Bahrain's longest bond public issue has been 10 years.

Order books for the new issue are currently worth more than $2.5 billion.

“Supply from the region is still low so the Bahrain long-dated paper should meet strong investor demand from global accounts such as pension funds and insurers,” said Abdul Kadir Hussain, who oversees about $700m as chief executive of Mashreq Capital DIFC.

Sergey Dergachev, senior portfolio manager for emerging market debt at Union Investment Privatfonds in Germany, which has about 10 billion euros ($13 billion) in emerging market debt under management, said: “The guidance of low six per cent is relatively attractive in my view.”

During the July 2013 sale of its 10-year bonds, Bahrain attracted orders from investors worth more than five times the final amount.

That degree of oversubscription is unlikely this time because of the long tenor. The tenor will be welcomed by international investors given the scarcity of 30-year debt from the Gulf, but it is expected to attract only limited interest among Gulf institutions. So Bahrain may have to be content with selling only $500 million or slightly more, some investors said.

“Local demand will be limited for a 30-year tenor, despite fewer deals in longer tenors, so the issuer may have to wrap up with a smaller ticket size,” Hussain said.

Dergachev said he was comparing the upcoming Bahrain issue with Saudi Electricity Company's sukuk.

The spread between the Saudi Electricity sukuk and the Bahraini guidance implies a concession of about 30 basis points, “which makes the deal on first sight quite attractive on a relative value basis, even though I do expect some tightening of the guidance to occur,” he said.

Improving sentiment towards Bahrain can be seen in its five-year credit default swaps, used to insure against a debt default, which have dropped to 161 bps - close to their lowest levels since 2008 - from 240 bps at the start of this year. They were near 400 bps in late 2011.

Many bankers in the Gulf are comparing trading in Bahrain's last international bond, a $1.5 billion, 6.125 per cent, 10-year instrument issued last year, to the Dubai government's $750 million, January 2023 sukuk.

The Bahraini bond is now bid at a yield of 4.28 per cent, down 242 bps since September last year. Dubai's bond yield has dropped 171 bps to 3.81 per cent - underperforming Bahrain, despite the extreme bullish sentiment surrounding Dubai because of the renewed boom in its real estate market.

Bahrain chose Citigroup, Gulf International Bank, Mitsubishi and Standard Chartered to arrange the issue. - TradeArabia News Service