Planned Bahrain sovereign bond seen delayed amid unrest-bankers

Wed Feb 16, 2011 9:03am EST

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By Rachna Uppal

DUBAI, Feb 16 (Reuters) - A planned $1 billion Bahrain sovereign bond issue is likely to be delayed as anti-government protests shook the Gulf Arab kingdom on Wednesday while jittery investors, worried about their exposure, sold off state bonds.

Bahrain's debt insurance costs hit fresh 18-month highs on Wednesday as thousands of Shi'ite protestors, inspired by popular revolts that toppled rulers in Tunisia and Egypt, poured into Bahrain's capital to mourn for a second demonstrator killed in clashes this week. [ID:LDE71F002]

Bahrain had asked banks to bid on securing the mandate for a proposed sovereign bond issue early this month. [ID:nLDE7111X9]

"That process is underway but given everything that's happened in the past three days I'd suspect that will be postponed," said a banker at a bond syndicate desk in London.

"I'd be very surprised if they went ahead."

A Bahraini central bank official said the protests would not have an impact on the economy or financial sector, adding that investors were not worried. [ID:nWEB9493]

But investors were showing clear signs of concern though there was little wider fall-out on regional debt on Wednesday.

The cost of insuring debt against default rose 16 basis points to 275 bps, according to Markit.

Bahrain's 2020 bond has lost 6 points since the beginning of the year to trade at 95.85 05674RAA2= on Wednesday, giving a near-one point rise in yield to 6.1 percent.

"There was a significant drop in the Central Bank of Bahrain 2014 sukuk (on Tuesday), and it wasn't helped by the fact that Bahrain markets were shut so no local buyers around," said Thomas Christie, fixed income sales trader at Wallich & Matthes.

"Bahrain bonds are volatile right now, but it doesn't seem to be affecting other Gulf names. And the CBB sukuk has picked up a little today now that Bahrain is back at work and traders are picking up at the lows."

Pricing on Dubai government's 2014 sukuk AE046342208= was largely unchanged in secondary trading, and two issuers from the United Arab Emirates - Emaar Properties EMAR.DU and Abu Dhabi Commercial Bank ADCB.AD have issued bonds already this year.

But the risk of Bahrain contagion spreading to Gulf Arab neighbours will be closely followed and could affect the pipeline of issuance expected from the region in 2011.

"There are a lot of potential issuers looking to issue both sovereign and corporate but the reality is that after the wobble in Egypt, people felt it would be contained," the banker in London said.

"... now that Bahrain has reared its head I wouldn't be surprised if it shuts down the new issue market for some time."

(Additional reporting by Sujata Rao-Coverley in London; Editing by Ron Askew)

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