Bahrain's Mumtalakat Squeezes Yields as Government Debt Outperforms
2019-02-22 - 7:30 p
Bahrain Mirror- Reuters: Bahrain's sovereign wealth fund Mumtalakat raised $600 million in bonds this week, managing to squeeze yields by over 60 basis points as the issue was marketed, in a sign of renewed investor interest for Bahraini credits after the kingdom was pledged $10 billion in financial aid from its Gulf allies last year.
Saudi Arabia, the United Arab Emirates and Kuwait committed $10 billion in financial aid in October last year to rescue their ally from a possible credit crunch.
Bahrain's bonds have outperformed their peers since then.
Mumtalakat - wholly government owned - on Wednesday issued $600 million in Islamic bonds, or sukuk, with a 5.625 percent yield. The notes, which received orders of around $4 billion, were initially marketed with a yield of around 6.25 percent.
Fund managers said the final pricing was partly the result of hefty demand for emerging markets broadly.
When Bahrain's state-owned oil company Nogaholding tapped the market last November - at a time of lower oil prices and high volatility across emerging markets - it squeezed the price of its seven-year bond tranche by 25 basis points.
That was the first test of international demand for Bahrain's new debt since the Gulf aid.
The Mumtalakat issue has come amid improved market conditions. It also follows the inclusion of Bahrain's sovereign and quasi-sovereign debt in JPMorgan's emerging-market government bond indexes, which started at the end of January.
"Bahraini bonds are trading tighter than similarly rated peers because of the backstop it has from Gulf countries provided by the aid package," said Zeina Rizk, director of fixed income asset management at Dubai's Arqaam Capital.
Since October, yields on Bahrain's U.S. dollar-denominated sukuk due in 2024 shed 60 basis points, while the yields of Oman's dollar sukuk due in the same year increased by the same amount.
Mumtalakat's paper was priced only marginally below the Bahraini sovereign debt curve, but the newly issued sukuk gained half a cent when they started trading on Thursday, which put them roughly in line with government bonds.
Bahrain was hit hard over the past few years by a slump in oil prices. Despite the boost its bonds received from the $10 billion Gulf bailout, it remains - together with Oman - the financially weakest state in the Gulf.
S&P in November affirmed its B+ rating of Bahrain - keeping the country in junk territory - saying that it remained unclear how closely the Gulf financial support package will be tied to progress on Bahrain's fiscal consolidation plans.