Bahrain has raised $500 million from a private placement of bonds with five regional banks, giving the island-kingdom much-needed relief as it negotiates crucial financial support with its Gulf Arab allies.
The bonds were placed with Bank ABC, Emirates NBD, Kuwait Finance House, Noor Bank and Sharjah Islamic Bank, according to people with knowledge of the matter who asked not to be identified because the details are private.
A sell-off in emerging-market assets is prompting some countries to avoid the scrutiny of international bond investors, with cash-strapped Ukraine raising $725 million in Eurobonds from a private placement last month. For Bahrain, the funds also give officials time to agree on the details of the aid package with Saudi Arabia, the United Arab Emirates and Kuwait.
Bahrain’s economy, the smallest in the Gulf Cooperation Council, has been hit hard by the slump in oil prices in 2014. With rising public debt and low foreign-exchange reserves, investors say the kingdom needs support to avert a currency devaluation that could reverberate across the region.
The talks are making progress on a multi-year program that would involve spending cuts and measures to increase non-oil revenue, people with knowledge of the matter said last month.
“They haven’t released any details on the GCC rescue package, so they wouldn’t have been able to issue publicly,” said Anthony Simond, who helps manage $13 billion of emerging-market debt at London-based Aberdeen Asset Management.
Bahraini officials weren’t immediately available for comment on the private placement. Authorities have repeatedly said they have enough reserves to maintain the currency’s peg to the dollar.
The kingdom scrapped plans to tap the international bond market in March, opting instead to raise $1 billion in Islamic debt.
The privately-placed notes were priced at 330 basis points above three-year midswaps, the people said. That suggests a premium of around 30 basis points compared to Bahrain’s Eurobonds due 2021 and 2022, according to Hakki Kalsen, a portfolio manager for emerging-market debt at Union Investment Privatfonds in Frankfurt.