DUBAI- Bahrain met investors to discuss a possible international bond sale this year, which would be its first since it got a $10 billion bailout from its Gulf allies last year to avert a potential credit crunch, sources familiar with the matter said.

Saudi Arabia, Kuwait and the United Arab Emirates bailed out Bahrain last year when lower oil prices pushed its public debt to nearly 93 percent of annual economic output.

Bahrain's bonds have become among the most profitable in the Gulf since then. They offer investors the returns of a junk-rated country but without the risk of impeding defaults, given the support of its wealthier neighbours.

But the bonds dropped on Wednesday, partly because of news about the new debt sale but also because the government scrapped plans to reform its subsidy system, undermining efforts to mend its finances, as reported by Reuters on Tuesday. 

Government representatives met investors in a non-deal roadshow -- a series of investor meetings not tied to a specific transaction, the sources said.

Bahrain's Finance Ministry declined to comment on the new bond plans, which were first reported by Bloomberg.

As part of last year's bailout, Bahrain embarked on a series of reforms last year, among them imposing a 5 percent value-added tax, further subsidy cuts and a voluntary retirement plan for state workers.

But the government ditched the subsidy reform because its Sunni Muslim rulers were worried that austerity moves would bolster the majority Shi'ite-led opposition and stir more of the unrest that has rattled the kingdom since Arab Spring uprisings of 2011, officials told Reuters this week.

Bahrain's international bonds were weaker on Wednesday, with bonds due in 2026 and in both shedding around 0.5 cents on the dollar.

A government spokesperson on Tuesday did not confirm the subsidy reforms had been ditched but said Bahrain was committed to achieving fiscal balance as promised to its Gulf allies.

"The government confirmed to parliament that subsidy reform is a critical element of the national deficit reduction strategy, and that this reform would be implemented in coordination with parliament," the spokesperson said later.

The fiscal reforms, introduced last year, have so far cut Bahrain's budget deficit by 35 percent, according to preliminary estimates for 2018.

In a report published on Tuesday, the International Monetary Fund called for "additional fiscal and structural reform efforts to strengthen the fiscal and external positions."

The IMF expects Bahrain's deficits to continue over the medium term, with public debt approaching 114 percent of GDP.

(Reporting by Davide Barbuscia; editing by Alison Williams, Larry King) ((; +971522604297; Reuters Messaging: