Bahrain

Saudi Arabia, along with Kuwait and the United Arab Emirates, came to the rescue of Bahrain last year when a prolonged period of lower oil prices pushed its public debt to nearly 93 percent of annual economic output, Reuters reported. Their $10 billion bailout pledge, along with Bahrain’s inclusion in JPMorgan’s emerging market indexes, have transformed its bonds from a busted bet to a boon for investors. The price of Bahrain’s 2028 dollar bonds has risen by a third from a record low last June when the country looked in danger of default.

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Bahrain went from being a bond-market pariah to a darling this year after its Gulf neighbors came to its rescue to ward off any default. But falling oil prices have brought the island kingdom’s finances into focus again, Bloomberg News reported. After outperforming its Gulf peers in the third quarter, Bahrain’s dollar debt has been hurt by crude’s slump in the past two months. Investors are concerned about the government’s ability to put its austerity plan into action, with oil prices well below what it needs to balance its budget.

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Bahrain’s credit risk declined to the lowest level in five months on optimism the nation’s neighbors will soon come to the island-state’s rescue with an aid package, Bloomberg News reported. The cost of insuring Bahrain’s debt against default fell 34 basis points last week on relief that Saudi Arabia, the United Arab Emirates and Kuwait were said to be considering a $10 billion plan. The contracts closed at 307 basis points on Friday, the lowest since May and about half the level in June, when concern over the country’s finances spurred a sell-off of Bahraini assets.
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Bondholders’ relief over a Gulf pledge to prop up Bahrain’s struggling economy has given way to anxiety now that three weeks have passed without any sign aid is on the way, Bloomberg News reported. Saudi Arabia, Kuwait and the United Arab Emirates are waiting for Bahrain to submit its proposal for economic reforms before giving any money to the cash-strapped nation, according to three people familiar with the issue, who declined to be identified because of the sensitivity of the discussions.
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Bahrain hired investment bank Lazard Ltd. to advise on how to repair its strained public finances, according to people with knowledge of the matter, as the island kingdom seeks to secure crucial support from rich neighbors to avoid a currency devaluation, Bloomberg News reported. Lazard is helping Bahrain evaluate fiscal reforms to help ease pressure on the state’s budget, the people said, asking not to be identified because the details aren’t public. The options include raising capital from international markets, one of the people said. Bahrain’s Eurobonds dropped after the report.
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Bahrain said Wednesday its Gulf neighbors Kuwait, Saudi Arabia and the United Arab Emirates will offer new aid to strengthen the island nation's "fiscal stability" amid growing concerns over its economy, the International New York Times reported on an Associated Press story. Bahrain, just off the coast of Saudi Arabia, long has relied on the largess of its wealthy neighbors to support it despite being the first Arab nation in the Persian Gulf to strike oil.
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The absence of any signal of financial aid from Bahrain’s neighbors sent the kingdom’s credit risk rising the most in emerging markets this month, Bloomberg News reported. The cost of insuring Bahrain’s debt against default for five years jumped 170 basis points on Monday, the most since records began in 2008, to 609. That’s the highest among emerging-market peers after Lebanon. The dinar, whose peg to the dollar has been effectively unchanged since 1980, fell a fourth day in the onshore market to the weakest level since at least 1988.
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The cost of insuring Bahrain’s sovereign debt against default is at an historical high, amid continuing concerns over the country’s ability to tap international markets to stave off a potential financial crisis, Reuters reported. Bahrain’s credit default swaps went up to 413 basis points last week, surpassing previous peaks of 412 basis points in February 2016, when oil prices were at around $30 per barrel, and a peak of around 400 basis points in early 2012, in the aftermath of the political uprising of the previous year.
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Franklin Templeton Investments has cut back its debt holdings in Bahrain, citing the “very serious” threat that the cash-strapped nation will experience an economic crisis in the next 12 months if financial aid from neighbors doesn’t come through, Bloomberg News reported. Templeton’s exposure is “much reduced today” because the government seems to lack a credible reform plan, according to Mohieddine Kronfol, the firm’s chief investment officer for global sukuk and Middle East and North Africa fixed income.
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Bahrain should consider implementing corporate income tax to shore up its finances as rising interest rates hinder its ability to borrow, the International Monetary Fund said. “Notwithstanding notable measures implemented since 2015, a credibly large fiscal adjustment is a priority,” the IMF said in a report dated May 30, Bloomberg News reported. “The implementation of a value-added tax, as planned, would be important.
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