Bahrain borrows to fund gassing of the masses

Bahrain bond: the price of protest
November 17, 2011 – by Simeon Kerr

Despite deep political tensions and a vulnerable economy, Bahrain has managed to issue a $750m sovereign bond, becoming the first strife-hit country of the ‘Arab spring’ to tap capital markets since unrest began in January.

The seven-year sukuk is paying out 6.3 per cent, twice as expensive as, say, oil-rich Abu Dhabi, one of the city-states to have escaped street protests this year. But, in the circumstances, the Bahrain government will be grateful for the terms it has secured.

In the wake of revolutions in Tunisia and Egypt, Bahrain was rocked by protests in February and March as the majority Shia called for more rights and an end to discrimination from the minority Sunni-led government.

Bankers were upbeat about the sukuk’s implications for Bahrain: yes, it is on the expensive side; but the government has managed raise foreign capital only months after the country become made international headlines for protest and repression.

“It’s great that Bahrain has got this done,” says Andrew Dell, head of debt capital markets at HSBC in Dubai. “It is very good value for investors at that level.”

Interest in the Shariah-compliant issue, which has received a fillip from Islamic investors, has been underpinned by a belief that despite short-term problems, Bahrain will be able to repay its rising debt pile in the future.

But traders’ reasoning is telling: everyone expects Saudi Arabia to backstop their Sunni brethren in Manama. Around 60 per cent of the sukuk investors came from the Middle East.

And as Manama becomes increasingly yoked to its big brother in Riyadh, its room for manoeuvre – and reform – diminishes further. …source