Manama: Oil-dependent Bahrain has visited the international markets for the third time in less than a year, bearing an attractively priced deal as it battles a worsening financial situation.

The sovereign received more than $6 billion (Dh22 billion) in orders last week as it printed $1 billion of seven-year sukuk — its first deal in that market in five years — and a $1 billion 12-year conventional bond.

“It had good timing as there is demand for higher-yielding names, and the Middle East is the right region, particularly with commodity prices recovering,” said Zsolt Papp, a client portfolio manager at JP Morgan Asset Management.

“It pretty much ticked all of the boxes.” The 12-year conventional tranche was initially marketed at the 7.25 per cent area, or about 570bp over mid-swaps. For comparison, Bahrain’s January 2026s were at 487bp over mid-swaps, according to Thomson Reuters.

Pricing was revised to 7.125 per cent, before launching at 7 per cent. A banker close to the deal saw a new-issue premium on the notes at 15bp-20bp.

“We saw more value in the conventional 12-year, which came slightly cheaper,” said Max Wolman, portfolio manager at Aberdeen Asset Management.

Illiquid

Finding fair value for the sukuk was more difficult because of the illiquidity of Bahrain’s sukuk curve.

The sukuk began marketing at 6 per cent area. Guidance was set at 5.75 per cent-5.875 per cent, with the notes being priced at 5.625 per cent, or 424bp over mid-swaps. The banker on the deal saw the new-issue concession on the sukuk as anything up to 10bp.

The concession was enough to attract demand, despite testing the duration appetite of domestic investors.

“We had some pushback on the ratings and tenor on that one, but we had a big enough book to tighten pricing considerably,” said a second lead banker.

Concerns

Bahrain printed the deal it wanted despite wider concerns about its credit quality. “Bahrain is not a great credit,” said Wolman. “But it’s getting enough support from the GCC that you don’t need to worry about it too much. It’s the highest paying of the sovereigns out there, so why not buy it?” Earlier this month Oman, which is equally vulnerable to commodity prices, printed a tap of its 10-year notes at 4.708 per cent.

While Oman is investment-grade rated at Baa1/BBB-, and its bonds are index-eligible, unlike Bahrain, the latter’s new 12-year notes are still offering a considerable pickup.

Bahrain’s current account fell into a $79 million deficit last year. Foreign reserves have more than halved since the end of 2014, dropping well below the import cover level considered a country’s comfort zone.

However, Bahrain benefits from a regional development fund.

The bond prospectus also revealed that Bahrain receives “significantly more” than its 50 per cent entitlement under the Abu Saafa oilfield treaty with Saudi Arabia.

The sovereign had sought to get into the market before its bigger neighbour Saudi Arabia arrives with its jumbo debut.

The strategy paid off, with both bonds trading up on the break.

“The issuer is very responsible,” said the second lead banker. “They know they shouldn’t squeeze every penny out of investors.” Bahrain is rated BB stable/BB+ stable (S&P, Fitch).

The 144A/Reg S transaction was run by Bank ABC, BNP Paribas, Credit Suisse, JP Morgan and Standard Chartered.