Bahrain to Plan First Return to Bond Market Since Gulf Aid

(Bloomberg) -- Bahrain is planning to return to international bond markets this year for the first time since the kingdom’s Gulf allies pledged a $10 billion package to help repair its finances and support its currency, according to people familiar with the matter.

Government officials are in talks with banks for a possible issuance in the second half of the year and have already met global investors in a non-deal roadshow, the people said, asking not to be identified because the discussions are private. Bahrain delayed plans to sell bonds earlier this year after taking measures to cut spending and saying it intended to balance its budget by 2022, two people said. The Finance Ministry declined to comment.

The potential sale will test investor confidence in Bahrain, which struggled to tap international bond markets last year. Under a five-year program agreed on with its neighbors and led by Saudi Arabia, the country has pledged to raise its non-oil revenue and slash spending to trim its budget deficit and ballooning debt.

The yield on Bahrain’s debt maturing in 2028 rose five basis points on Wednesday and exceeded 6 percent for the first time since the end of March, according to data compiled by Bloomberg.

Bahrain’s finances came under pressure after the 2014 oil-price slump. The government has $6.8 billion of debt maturing this year and will need to fund a budget deficit estimated at $1.9 billion.

International Monetary Fund estimates that include extra-budgetary expenditures show Bahrain will run a deficit of 8.4 percent of economic output in 2019 and 7.7 percent next year, according to a statement issued on Tuesday after its Article IV consultation with the kingdom.

The IMF advised the government to introduce direct taxes, reduce exemptions for a 5 percent value-added-tax and phase out untargeted subsidies. But a plan to reform subsidies was scrapped on Tuesday because authorities feared it may stoke unrest in the country, Reuters reported, citing officials it didn’t identify after a meeting of parliamentary and government officials.

The country has one of the Gulf’s weakest finances, with S&P Global estimating its net debt at about 63 percent of economic output this year. Interest payments make up about 25 percent of revenue, the ratings company said in a report this month.

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