Bahraini agency Bapco Energies, or Nogaholding as it also used to be known, returned to the US dollar sukuk market for the first time since May 2023 on Thursday with a deal that came incredibly tight to the sovereign's curve.

The company, a strategic energy investment and development arm of Bahrain, wholly-owned by the sovereign, issued a US$1bn 10-year sukuk at a yield of 6.25%, 50bp inside the starting point of the 6.75% area.

"The sukuk market never ceases to amaze me," said a lead banker, referring to its pools of liquidity. Books were over US$4bn.

The Bapco deal was supported by a capped tender offer of up to US$250m for its US$1bn 7.5% October 2027s. Even so, the response showcased how keen investors are for yield.

Bapco, rated B+ by Fitch, had stated it was considering seven or 10-year debt. Given how volatile rates have been over the past month, a seven-year would, in theory, have made more sense.

But in the sukuk market yield curves are relatively flat, said the banker, while investors have fewer concerns about duration. The opportunity to lock in an attractive profit rate for longer drove demand.

So much so that the hope of a decent premium over the sovereign disappeared as pricing was whittled down. Bahrain has June 2032 sukuk, issued last November, bid around the 6.05% mark, according to LSEG data. It's arguable where a new 10-year based off that secondary level would land, but it probably wouldn't be much inside Bapco.

The issuer itself has May 2033s, which are bid at 5.85%, according LSEG, though they are relatively illiquid.

Citigroup, GIB Capital, HSBC, JP Morgan, Mashreq, National Bank of Bahrain and Standard Chartered were the lead managers.

Source: IFR