* Bahrain picks BNP, Citi, JPM and GIB Capital for issue
* New issue to be at least $500 mln in size
* Despite unrest, spreads on Bahrain bonds tightening
(Adds detail, background, quotes from economist and trader)
By Rachna Uppal and David French
DUBAI, April 29 Bahrain has mandated banks for a
sovereign bond issue, three sources familiar with the matter
said on Monday, with proceeds likely to help the oil exporter
plug a budget deficit this year.
The government of the Gulf kingdom is seen taking advantage
of low borrowing costs due to falling U.S. Treasury rates and
healthy investor appetite for Gulf investment-grade debt.
Bahrain has mandated BNP Paribas, Citigroup Inc
, JP Morgan Chase and GIB Capital, the investment
banking arm of Gulf International Bank, for the
issue, three banking sources told Reuters on Monday.
All the sources requested anonymity because details of the
mandate are not yet public. Any transaction is expected to be at
least $500 million in size.
"Bahrain has the weakest public finances of the oil
producing states and the highest breakeven price by far," said
Simon Williams, HSBC's chief economist for the region, referring
to the price of oil. "Even at a $100 a barrel, I expect Bahrain
to be running a budget shortfall this year."
Bahrain depends on crude from an oil field it shares with
Saudi Arabia for some 70 percent of its budget revenue. It is
the only nation out of the six-member Gulf Cooperation Council
(GCC) facing a fiscal deficit in 2013.
The state needs oil prices to average $122 per barrel this
year to be able to balance its budget, a finance ministry
official estimated in November, by far the highest level in the
Gulf Arab region.
Yet some expect investor response to the planned bond to be
"This is a smart move by the government; costs of borrowing
are low compared to the outstanding issues and yet there is
still demand," a regional fixed income trader said. "People are
happy to invest in the low 4 percent area."
Despite recent political unrest, the Bahrain government has
been keen to project a "business as usual" image and has
regularly tapped global debt markets to raise financing.
The high likelihood of political and economic support from
Saudi Arabia has also boosted investor sentiment.
Bahrain, rated BBB by Standard & Poor's, tapped global
markets with a $1.5 billion 10-year deal in July last year,
which priced at 99.867 cents to yield 6.143 percent.
Yields on the bond have fallen substantially
since issue. It was bid to yield 4.2 percent on Monday morning,
according to Thomson Reuters data.
Costs to insure against sovereign default have also tumbled.
Bahrain's five-year credit default swaps (CDS) were trading at a
midspread of 201 bps on Monday, according to data from Markit.
CDS prices have been largely stable this year, but are
substantially lower than levels of 350 bps a year ago.
(Additional reporting by Martin Dokoupil; Editing by David