Bahrain will add to efforts by the Arab Gulf states to create an active bond market in the region by raising more than $1bn in a debt sale in local currency and US dollars, the central bankcentral bank revealed on Tuesday.
Abu Dhabi, part of the United Arab Emirates, and Qatar have already sold $6bn worth of bonds between them in the past month but are expected to issue more and at longer maturities, as are Kuwait and the UAE's Dubai.
The bonds are primarily to secure financing for important development projects and government-owned subsidiaries and, in some cases to plug budget deficits. But it is also hoped that sovereign bonds from the states can create benchmarks against which corporate issuers in the region will be able to price their own debt.
There are reports that Dolphin EnergyDolphin Energy, a gas producer owned by Abu Dhabi, could raise funds through an international bond sale to help repay some of the $3.5bn in loans it must refinance.
Bahrain, the only one of the six Gulf states that already has a viable, if small, bond market, will bolster this trend by selling $500m in shariah-compliant five-year bonds, known as sukuk, at the end of May, the state's central bankcentral bank told Bloomberg on Tuesday. It would also issue BD250m ($660m) worth of local currency three-year bonds.
Historically, the Gulf's capital markets have been restricted mainly to equities, as debt was little needed in a region dominated by the cash-generative oil industry, which has also attracted plenty of foreign investment.
The total of outstanding bonds from the region is about $111bn, mainly issued by governments and banks or other financial institutions. This is equivalent to only about 10 per cent of the region's gross domestic product, a much lower proportion than in other markets.
There is also very little trading of the bonds and most are shorter-term issues.
In the past, credit rating agencies have complained about a lack of transparency and access to accounts.
Bahrain's bond sale would be the first new sukuk deal from the Gulf this year, which illustrates the extent to which the market for shariah-compliant debt has been hit by the global financial crisis, in spite of its apparent separation from the more troubled debt markets of western Europe and the US.
