Bahrain Cancels Bond Offer After S&P Cuts Sovereign Rating

Updated on
  • State's $750 million tap to 2021, 2026 bonds priced on Tuesday
  • Any future transaction will be subject to market, Bahrain says

Bahrain canceled a bond offering less than two days after the securities were priced in the wake of a Standard & Poor’s decision to downgrade the nation’s debt to junk.

The Gulf kingdom had planned to raise $750 million by issuing an additional $450 million of an existing 2021 note and another $300 million of a 2026 security. Prices of the outstanding notes erased declines after the announcement. Bank ABC, BNP Paribas SA, Citigroup Inc., HSBC Holdings Plc and JPMorgan Chase & Co. managed the transaction.

“Bahrain, what a mess,” said Angelo Rossetto, a trader at GMSA Investments Ltd. in London, who had bought Bahrain’s offering this week. “To be fair it was a very honest move by them. They protected investors who went in for the tap.”

S&P downgraded Bahrain’s sovereign debt by two levels to BB on Wednesday, saying the collapse in oil prices will “exacerbate existing structural frailty in Bahrain’s public finances, despite an active response from authorities.” The rout in crude is taking a toll on growth across the Arab world. Saudi Arabia, the largest economy in the region, also had its debt cut two steps yesterday.

Bahrain has determined to not proceed with the offering “following the ratings announcement by Standard & Poor’s,” the central bank said in an e-mailed statement on Thursday. "Any future transaction will be subject to market conditions," it said.

‘Reputational Damage’

Bahrain’s vulnerability to a decline in oil prices has increased since 2009 when government expenditures started to rise in response to the global economic slowdown and civil unrest in the country, according to S&P. Preliminary 2015 fiscal data indicate a wider-than-anticipated deficit of about 11.5 percent of economic output, compared to 10 percent expected previously, the rating company said.

Yields on the January 2021 bonds dropped 11 basis points to 5.66 percent at 1:16 p.m. in London after climbing to 6.19 percent earlier in the day, according to data compiled by Bloomberg. The yields on the 2026 securities retreated 22 basis points.

The decision is right and will “prevent any reputational damage,” said Apostolos Bantis, a Dubai-based credit analyst at Commerzbank AG. Proceeding with the issue “would have damaged sentiment for the rest of the Gulf issuers considering that several other Gulf sovereign’s are planning sales,” he said.

Saudi Arabia, the world’s biggest oil exporter, is planning to issue international bonds in addition to local debt to bridge its $87 billion budget deficit. Qatar, the world’s largest liquefied natural gas exporter, Oman and Abu Dhabi are all considering the sale of bonds to bridge their budget gaps.

(Adds governments' bond sale plans in last paragraph.)
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