Would Bahrain Liquidate its Assets to Cope with Financial Crisis?

2018-09-01 - 10:02 p

Bahrain Mirror - Exclusive: Over the past few weeks, Bahrain has faced difficult financial conditions that prompted the Gulf countries to announce a financial rescue plan to help the small country cope with the crisis that has been pounding it for years.

Saudi Arabia, Kuwait and the UAE announced in a joint statement (March 27, 2018) an integrated program to support economic reforms and the stability of Bahrain's public finances. That was hours after the Bahraini Dinar was announced to reach a 17-year low against the US dollar.

The Gulf states have not yet announced additional data on support mechanisms and its schedule, an issue that did not help improve Bahrain's credit rating. "Moody's" downgraded Bahrain's rating from a "B1" to "B2", keeping it on a "negative" outlook.

While the agency expected Bahrain's debt burden to rise to about 100% of GDP from less than 90% last year, it saw that Bahrain had lost access to global debt markets at reasonable cost, at least temporarily.

"This leads to capital flight and keeps investors from buying and selling government bonds, thus raising the cost of borrowing to the government, which could destabilize the country's economic and financial stability," said economic analysis Jaafar al-Sayegh.

Bahrain raised its debt interest rate by 700% in a bid to get a loan of 150 Million Dinars from local lenders. A local newspaper (July 28, 2018) reported that this measure was aimed at attracting investors and securing liquidity to cover budget deficits and public expenditures.

Bahrain's difficulties in accessing global markets and the lack of transparency among Gulf sponsors, may push for tougher measures, including currency cuts and the liquidation of investment assets.

Analysts fear news that "Mumtalakat", the sovereign wealth fund of the Kingdom of Bahrain, will sell its stake in "Nobel Learning Communities", the leading provider of private education services in the United States, as part of the process of liquidating some of its assets to cope with the crisis.

"The Noble Learning Company has continued to grow significantly since we invested in it three years ago. Studies show that the per capita income increases by 10% with every additional year of education during [the capita] childhood", according to Mahmood Hashim Al-Kooheji, CEO of "Mumtalakat". Al-Kooheji's comments raise further doubts about the purpose of selling "Mumtalakat's" share.

In addition, Kuwaiti government sources said that Kuwait is moving to buy shares owned by the Social Insurance Organization (SIO) in Bahraini companies, as part of its Bahrain financial rescue plan.

An unnamed source was quoted by Kuwaiti newspaper Al-Anba saying, "Kuwait has a strategy to support the Bahraini economy based on two main axes which are the provision of a monetary bailout package, in addition to the Kuwaiti government's purchase of shares in some of the Bahraini banks and companies with good operational performance and profitability".

The sources said that the shares the Kuwaiti government seek to purchase through governmental institutions and entities, are owned by the Social Insurance Organization (SIO), and are concentrated in companies and banks listen on the Bahrain Stock Exchange for easy access to investment funds, and easy selling and buying in the future.

The public debt reached 11.5 Billion Dinars ($30 Billion) at the end of the first half of this year, in an increase by 12%. The deficit is expected to reach 1.5 Billion Dinars and the public debt will reach 500 Million Dinars.

If "Mumtalakat" has not already begun to liquidate some assets, then its resorting to this bitter measure, along with the pension fund (SIO), doesn't seem far-fetched anymore!


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