Standard & Poor’s Ratings Services has assigned its ‘A-‘ foreign currency senior unsecured debt rating to the
- Kingdom of Bahrain’s proposed fourth issue of Islamic leasing Sukuk (bonds) scheduled for November 19, 2002.
The fourth issue of the Sukuk amounts to US$50mn, carries a three-year maturity, and has a rental return of 3% per year paid half-yearly in May and November.
At the same time, Standard & Poor’s affirmed its ‘A/A-1’ local and ‘A-/A-2’ foreign currency ratings on the Kingdom. The outlook is stable.
The Sukuk, which will be issued by the Bahrain Monetary Agency on behalf of the government of Bahrain, will be registered and traded on the Bahrain Stock Exchange.
“The Sukuk are direct obligations of the government of Bahrain itself rather than a special-purpose vehicle,” says Ala’a Al-Yousuf, Standard & Poor’s credit analyst and director of Sovereign Ratings for the Middle East and Africa. “Nevertheless, the government of Bahrain has guaranteed these Sukuk through a binding agreement to continue renting the underlying real-estate assets according to the rental contract and to buy them back at the end of the three-year period at par value,” continues Al-Yousuf.
The ratings on Bahrain are supported by:
- The government’s prudent fiscal policy (government budget deficits have typically been below 2% of GDP);
- A relatively low debt burden (central government debt at year-end 2001 was 30% of GDP, of which only 5% of GDP was external debt, all to regional development funds); and
- Monetary stability and a robust financial system (Bahrain’s fixed exchange rate underpins price stability).
The ratings on Bahrain are constrained by:
- A narrow base for government revenues. Oil revenues, virtually all from the Abu Sa’afa offshore oilfield, account for about 67% of total revenues;
- A lack of transparency in public finances. The published accounts of central government are neither comprehensive nor presented according to international standards; and
- Uncertainty about the policy agenda. A new bicameral parliament will be formed soon after a 27-year hiatus followed by the formation of a new cabinet.
The stable outlook reflects Standard & Poor’s view that the government will maintain macroeconomic stability and a low debt burden, although it may not make sufficient or early progress on improving the transparency of public finances and implementing structural reforms.