* Government sent requests for proposals to banks
* Last issued $750 mln sukuk in November 2011
* Fiscal gap of 3.7 pct/GDP forecast in 2012
By Rachna Uppal and Sudip Roy
DUBAI/LONDON, April 25 Bahrain, troubled by
ongoing social unrest, is testing whether it could draw
investors into a potential sovereign bond sale, although the
issuance is unlikely to be imminent, government and banking
sources said on Wednesday.
A year of clashes between mostly Shi'ite-led protesters and
Sunni government security forces has been weighing on the small
non-OPEC oil exporter, eroding capital parked in its mutual
funds, while fiscal handouts have raised the country's
vulnerability to a potential oil price drop.
"Bahrain sent out RFPs (requests for proposals) earlier this
week. There are no mandates yet but they seem to be very serious
about tapping the market," said a banker, who did not want to be
A senior government source told Reuters that the issuance
was not imminent despite the requests to banks, adding that the
country was a regular issuer and the political situation in the
kingdom would not negatively influence investor appetite.
"They tend to give out mandates and wait. There's no
requirement to issue immediately," another banker said.
Last November, the island kingdom, drew $1.8 billion in
demand for its $750 million, seven-year Islamic bond, or sukuk,
its first sovereign issue since March 2010, pricing it at a
yield of 6.273 percent. The order book mainly went to Middle
Bahrain had initially looked to sell a $1-billion
conventional bond at the beginning of 2011 but was forced to
postpone plans due to its worst turmoil since the 1990s, which
it eventually suppressed with the help of martial law and Saudi
But clashes between pro-democracy protesters and security
forces has been going on on a daily basis for the past months.
Four policemen were wounded by an explosion in a village in
western Bahrain on Tuesday that the government said was a
"terrorist" act after weeks of protests against a Formula One
Grand Prix held in the Gulf Arab state.
Another banking source said he believed Bahrain, a U.S. ally
and home of the U.S. Navy's Fifth Fleet, wanted to issue a bond
"as a PR stunt to show all is well."
Five-year Bahrain credit default swaps, which reflect how
investors assess the risk that a country will not be able to pay
back its obligations, have been easing gradually this year to
around 372 basis points on Wednesday from a peak of 408 points
at the end of January, according to Markit data.
"I think perhaps this is a question of getting money in the
bank while markets are reasonably decent," said a London-based
analyst, who declined to be named.
Yield on Bahrain's sukuk maturing in 2018 stood just below
5.0 percent bid on Wednesday, up from a low of 4.8 percent at
the beginning of the month but well below this year's high of
5.7 percent in mid-January.
The turmoil prompted Bahrain, whose credit rating has been
downgraded by up to three notches last year, to boost government
spending by 22 percent from its original 2011 target to 3.1
billion dinars ($8.2 billion), though robust oil prices have
been helping to ease budget strains.
For 2012, the government had forecast a deficit of 8.8
percent of GDP due to slightly lower spending, which at 3.1
billion dinars was still 14 percent higher than the original
Bahrain, the regional financial centre, is rated 'Baa1' by
Moody's and 'BBB' by Standard & Poor's and Fitch.
Bahrain needed an average oil price of $114 per barrel in
2011 to balance its budget, the highest in the Gulf, up from
just $80 in 2008, the International Monetary Fund said on
Tuesday. The Fund forecasts that the country's gross government
debt will fall to 31.6 percent of GDP this year from an
estimated eight-year peak of 36.4 percent in 2011.
Analysts polled by Reuters in March expected the kingdom to
post a budget deficit of 3.7 percent of gross domestic product