Bahrain: Bahrain sold $2 billion in its second bond offering of the year on Wednesday, a dual-tranche issuance comprising seven-year sukuk, or Islamic bonds, and a 12-year conventional tranche.

The small oil producer, which averted a credit crunch in 2018 with a $10 billion aid package from its Gulf neighbors, raised $2 billion in May to bolster finances battered by low oil prices and the coronavirus crisis.

On Wednesday it sold $1 billion in sukuk at 3.95% and $1 billion in 12-year bonds at 5.45%, receiving more than $7.6 billion in combined orders for the paper on offer, a document from one of the banks arranging the deal showed.

Rated ‘junk’ by S&P and Fitch, Bahrain began marketing the deal at around 4.5% for the sukuk and around 5.75% for the conventional bonds earlier on Wednesday.

Fund managers said the yields were tight compared with similarly rated issuers and considering Bahrain’s weak credit standing, with a debt-to-GDP ratio of 114.9% as of the end of June.

“Bahrain can offer a significantly lower yield than an issuer like Egypt because of the explicit support of its Gulf neighbors,” said Doug Bitcon, head of credit strategies at Rasmala Investment Bank.

Bonds due in 2032 by similarly rated Egypt were yielding 7.2% on Wednesday, according to Refinitiv data, while Saudi bonds due in 2032 were yielding 2.3%.

“Bahrain still has a long way to go toward fiscal sustainability ... but I think the market right now is saying they have time because of Gulf support, primarily from Saudi Arabia,” said Abdul Kadir Hussain, head of fixed income asset management at Arqaam Capital.

Bahrain had considered issuing a 30-year conventional tranche in lieu of the 12-year bonds or alongside them, but opted for the shorter tenor.

“There was no investor appetite for a 30-year tranche. Bahrain has a relatively low amount of bonds maturing in 12 years, so it was a sweet spot,” a financial source said.

Bank ABC, Citi, Gulf International Bank, HSBC, National Bank of Bahrain and Standard Chartered arranged the deal.