BAHRAIN. The smallest oil producer among the six Gulf Arab states, Bahrain, raised the size of its Islamic bond to US$750 million and tightened the pricing on its five-year note complying with Islam’s ban on interest, Algebra Capital said.

The bond may be priced to yield about 340 basis points above similar maturity US Treasuries, Mohieddine Kronfol, Managing Director at Algebra in Dubai, said in an interview today. Algebra, which manages a fund that is dedicated to Islamic bonds, is investing in the issue.

The yield on Bahrain’s Islamic bonds, also known as Sukuk, compares with five-year conventional bonds sold by Abu Dhabi in April that were priced to yield 400 basis points over Treasuries at the time of sale. A basis point is 0.01 percentage point. A banker familiar with the Bahraini deal said yesterday the bond may be priced to yield about 350 basis points

“They will probably raise much of this issue from Islamic institutions in the Middle East,” Kronfol said. “Islamic banks have the liquidity and they do need high-grade paper to invest in. I don’t think the pricing is very attractive.”

Bahrain’s central bank said on 14 April the country will start selling US$500 million of five-year Islamic bonds. The Sukuk will be the first Islamic sovereign issue from the Gulf region in 2009.

Bahrain is joining a surge in borrowing from Abu Dhabi and Qatar this year as emerging-market investors return and oil prices climbed above US$70 a barrel in intraday trading last week, boosting commodity-exporting economies.

Governments and state-linked firms from the Gulf region have raised US$10.8 billion by issuing international bonds since the beginning of the year, the most in at least eight years when compared with the same period, according to data cited by Bloomberg.

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