Gulf states to issue bonds to cover debt

The central bank of Bahrain will issue bonds this year, one of a series of issuances planned by Gulf countries to finance potential budget deficits and bolster debt markets. For 2009, Bahrain is budgeting for total expenditure of US$5.5 billion (Dh20.2bn) against income of $3.7bn, leaving a record projected deficit of $1.7bn. The bond issuance will help plug this gap.

"We are working on two issues, one in local currency and one in dollars," the Bahrain central bank governor, Rasheed al Maraj, said at the GCC Banking Conference in Bahrain. "This will hopefully come soon. We are finalising the programme with the ministry of finance." The announcement followed calls from analysts for Gulf governments to issue benchmark government bonds, necessary for developing bond markets, through which Gulf companies could then raise funding.

"We need to see better sovereigns in the GCC come to the market and set new benchmarks, because the benchmarks will then make it easier to determine the right pricing," said Ivor Dunbar, the co-head of capital markets at Deutsche Bank. Gulf governments have not issued much sovereign debt, as there had been little reason to raise money with huge budget surpluses from high oil prices. But since the start of the financial crisis last year, both regional and international banks have grown reluctant to lend, making the lack of a well-developed bond market in the region difficult for cash-starved companies.

"Gulf governments need to get together to work on establishing a Gulf bond market," said Eckart Woertz, an economist at the Gulf Research Center in Dubai. Mr al Maraj said the first tranche of the debt would be a $500 million sukuk. The size and structure of the second tranche, to be issued in Bahraini dinars, was yet to be decided, he said. Mr al Maraj said he expected inflation to fall to 4 per cent in Bahrain this year, with economic growth expected to fall from 7 per cent to about 3 per cent.

Oman, the biggest Arab oil producer that is not a member of OPEC, may offer bonds later this year if oil prices stay low, he said. Oman's real GDP growth might slow to between 1 per cent and 3 per cent this year because of low crude prices, its central bank president, Hamood al Zadjali, said in Manama on Tuesday. The country needed an oil price of between $60 and $70 a barrel to balance its budget, Mr al Zadjali said. Last month, the government of Dubai issued bonds to help meet its funding needs. The Abu Dhabi Government is also understood to be launching a eurobond in dollars.

* with agencies [e-mail]