Bahrain, which quashed anti- government protests in 2011, will pay more to raise $1.5 billion than it did in prior 10-year bond sales, a person familiar with the sale said, as investors focus on political risks.
The smallest member of the six-nation Gulf Cooperation Council priced bonds at 437.5 basis points over similar-maturity midswaps, or about 6.15 percent, according to the person, who asked not to be identified because the information is private. Bahrain last sold 10-year debt in March 2010 at 5.5 percent, data compiled by Bloomberg show. The yield on the bonds due in March 2020 was 5.54 percent at 4:31 p.m. in Dubai.
“International investors are still a bit unsettled about the situation there and they would demand a premium to reflect their nervousness,” Nick Stadtmiller, head of fixed income research at Dubai-based Emirates NBD PJSC (EMIRATES), said today. “Credit spreads for Bahrain are quite a bit wider than they were a couple of years ago, which largely has to do with political uncertainty.”
The cost of insuring Bahrain’s debt for five years using credit default swaps was 345 basis points on June 26, almost double the level in January 2011, when an uprising toppled Tunisia’s leader and protests started in Egypt. Protesters led by Bahrain’s Shiite Muslim majority started demonstrating last year to demand more civil rights from the Sunni Muslim monarchy, and low-level protests continue to take place in Shiite villages. Security forces cracked down on mass protests beginning in February 2011 using forces which included troops from neighboring Saudi Arabia.
Favoring Gulf Debt
Bahrain is rated BBB at Standard & Poor’s, its second- lowest investment grade. Debt of Egypt and Tunisia has been downgraded to non-investment grade.
Bond sales in the GCC are having the best start of the year on record, with offerings rising to $18.5 billion so far in 2012 from $10.3 billion in the year-earlier period, data compiled by Bloomberg show. Investors are favoring investment-grade bonds from the Gulf amid prospects that the U.S. Federal Reserve may start a fourth round of stimulus to sustain the world’s largest economy and on concern Greece’s potential exit from the euro would hurt Europe’s economy.
Bahrain’s Ministry of Finance hired Citigroup Inc., Gulf International Bank BSC, JPMorgan Chase & Co. (JPM) and Standard Chartered Plc (STAN) to arrange the sale, the person said. The CDS contracts, tracked by data provider CMA, pay the buyer face value if a borrower fails to meet its obligations. CMA is owned by CME Group Inc. and compiles prices from the privately negotiated market.
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