The CBB 14 sukuk has seen its yield contract 220 bps since it was issued in June 2009. It is now trading at close to 4.00%,which leads me to believe that it's time to re-examine, from a trading point of view, the fundamentals of Bahrain compared to other sovereign issuers in the region, and identify switch trade ideas.
Bahrain, in terms of land mass and economic size, is the smallest of the GCC nations. The major cause of concern for both the Government as well as investors into the nation is Bahrain's fast depleting oil reserves. Oil, which accounts for 65% of Bahrain's export receipts and 75% of Government revenues, is being produced at 40,000 barrels a day, and reserves are estimated at 125 million barrels, which mean another 10 years of production before the wells literally run dry. Continuing with oil, Bahrain has the highest fiscal break even oil price - $84 per barrel, and ranks first in the S&P World Oil Price Vulnerability Index, meaning that in the event of a falling oil price, it would see the greatest impact to its fiscal program. As point of reference, Qatar is ranked 8 and Abu Dhabi, the holder of the bulk of the UAE's oil reserves is ranked 13 in the same index.
Although Bahrain has been trying to diversify away from its economic reliance on its natural resource base by building a robust financial sector (currently 25% of GDP), it is facing significant competition from other GCC nations trying to do the same. The country's fiscal position ranks lower than any of the other GCC nations, with the Government looking to the debt markets to fund its expansionary budget. Bahrain's sovereign debt is just over 20% of GDP, but its total external debt is one of the highest in the world. **
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