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| 09 October, 2018

Bahrain does not plan new dollar bond issue this year

Bahrain's agreement with its Gulf neighbours is tied to a comprehensive plan of economic reforms

Traders look at the screens at Bahrain Bourse in Manama, Bahrain, February 7, 2018.

Traders look at the screens at Bahrain Bourse in Manama, Bahrain, February 7, 2018.

REUTERS/Hamad I Mohammed

DUBAI: Bahrain does not plan to issue new U.S. dollar-denominated bonds this year, a central bank official told investors on Tuesday, after the kingdom secured a $10 billion aid package from Gulf neighbours last week, one source said.

A government spokesperson confirmed that in light of the government's recently announced fiscal balance programme, there was no plan to issue a new bond this year.

Bahrain, which was hit hard over the past few years by a slump in oil prices, is one of the financially weakest states in the Gulf, with a public debt estimated at 85.5 percent of gross domestic product in 2018.

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It has increasingly relied on external funding to refill its state coffers, but in March it had to cancel a planned sale of international conventional bonds as investors demanded higher yields.

An agreement signed last week with Gulf allies Saudi Arabia, the United Arab Emirates and Kuwait for a $10 billion aid package tied to fiscal reforms has averted the risk of a credit crunch.

During a call with bond investors on Tuesday, Shaikh Salman Bin Isa Al-Khalifa, executive director of banking operations at Bahrain's central bank, said that Bahrain does not have any funding requirements for this year and does not envisage tapping the international debt markets, said the source.

During the call the official reiterated that Bahrain's debt stock is expected to fall over the coming years and that the $10 billion financial support will be used to reduce its borrowing needs, previously estimated at $20 billion over five years.

Bahrain's agreement with its Gulf neighbours is tied to a comprehensive plan of economic reforms, called the fiscal balance programme, aimed at fixing the country's finances and eliminating its budget deficit by 2022. 

It was announced as the kingdom prepares to hold elections next month, the second ballot since 2011 when protesters took to the streets demanding democratic change.

The fact that Bahrain has no immediate fund-raising needs adds up to a positive narrative for the country, which includes the financial aid, but also a pickup in Bahrain's foreign reserves, as well as rising oil prices, said Doug Bitcon, head of credit strategies at Dubai-based Rasmala Investment Bank.

The central bank's net foreign reserves hit a one-year low of 499.4 million dinars ($1.3 billion) in July, although they rebounded to 734.2 million dinars in August. 

The rebound and the financial aid package have reassured investors that Bahrain can redeem a $750 million Islamic bond due next month.

($1 = 0.3768 Bahraini dinars)

(Reporting by Davide Barbuscia; Editing by Susan Fenton) ((Davide.Barbuscia@thomsonreuters.com; +971522604297; Reuters Messaging: davide.barbuscia.reuters.com@reuters.net))