May 6, 2020 / 9:53 AM / in 22 days

UPDATE 2-Junk-rated Bahrain to brave markets with dollar bond issues

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By Yousef Saba and Davide Barbuscia

DUBAI, May 6 (Reuters) - Bahrain has hired banks for a potential dual-tranche dollar bond issue, banking sources said, as the junk-rated Gulf oil producer seeks to raise cash amid the new coronavirus outbreak and historically low oil prices.

Bahrain’s plans mark a step towards recovery for the Gulf debt market, as sub-investment grade issuers had so far been unable to tap international investors due to huge volatility starting in March that followed tumbling oil prices and the spread of the coronavirus.

Bahrain’s finance ministry did not immediately respond to a request for comment.

The small oil producer needs to bolster its finances to plug a widening budget deficit due to historically low oil prices. The International Monetary Fund has said Bahrain’s fiscal deficit is expected to jump to 15.7% of gross domestic product (GDP) this year from 10.6% in 2019.

In a presentation for investors seen by Reuters, Bahrain said it expects a deficit of 4% of GDP this year, down from a 4.7% deficit last year.

The country was bailed out in 2018 with a $10 billion aid package from wealthy Gulf neighbours Saudi Arabia, Kuwait and the United Arab Emirates to help it avoid a credit crunch in a deal tied to fiscal reform.

Bankers and analysts have told Reuters it may need additional Gulf aid as soon as this year.

Bahrain has hired Bank ABC, Gulf International Bank, HSBC , JPMorgan, National Bank of Bahrain and Standard Chartered to arrange investor calls on Wednesday, to be followed by a benchmark deal subject to market conditions, the sources said.

Benchmark bonds are generally upwards of $500 million.

The planned deal consists of 4-1/2-year sukuk, or Islamic bonds, and 10-year conventional bonds, three sources said on Wednesday.

A fund manager in the region, who asked not to be named, said he expected Bahrain to pay around 50 basis points - or possibly more - over its existing bonds.

“I think this is the first single-B sovereign in the world to come to market since the COVID-19 crisis. So it really is a price discovery exercise,” he said.

Bahrain took a $1 billion loan from banks to pay down $1.25 billion in bonds that matured on March 31, sources have said, after it scrapped bond plans earlier this year due to adverse market conditions.

The country expects a further drawdown of $1.76 billion this year from the $10.25 billion aid package that was provided by its Gulf allies in 2018, the investor presentation showed.

That package was provided with a 0% interest rate and a maturity of 30 years per drawdown, the document said. (Reporting by Yousef Saba and Davide Barbuscia; Editing by Alex Richardson/Giles Elgood/Jane Merriman)

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