World Economy

Bahrain Denounces Downgrade

Bahrain Denounces DowngradeBahrain Denounces Downgrade

Bahrain’s banking regulator has strongly criticized ratings agency Standard & Poor’s downgrade of Bahrain. Central Bank of Bahrain Governor Rasheed al Maraj told the fifth annual (Persian) Gulf Cooperation Council Financial Forum in the tiny Arab kingdom that the downgrade was “unwarranted, untimely and uncalled for”.

According to al Maraj, the agency had failed to take into account the fact that Bahrain accelerated its fiscal consolidation plan, introducing price increases on fuel, fee increases on tobacco, redirecting subsidies on electricity, water and meat and cutting costs in ministries and government departments, Albawaba reported.

Calling S&P’s action too drastic, al Maraj said it was also unfortunate that it came when Bahrain upsized and launched a $750 million, two-part bond reopening. “This was on the back of strong demand with the order book topping $1.35 billion but we cancelled the re-tap for the sake of our investors,” he added.

Reuters reported that Bahrain has started taking orders again to raise funds through a reopening of its previous two-part bond sale. The country has set initial price thoughts for the re-tap, split between five- and 10-year portions, at respectively 5.95% and 7.65%.

Bahrain had priced its re-tap last week at 5.70% for the 5-year portion and 7.40% for the 10-year piece.

S&P cut Bahrain by two notches to ‘BB/B’ with a stable outlook, pushing the rating below investment grade and making Bahrain the first of the wealthy Persian Gulf Arab oil exporters (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE) to suffer that fate in the current downturn.

Bahrain is working with the same five banks–Bank ABC, BNP Paribas, Citigroup, HSBC and JP Morgan–which arranged its $1.5 billion bond in November and the cancelled re-tap.

Another key issue according to al Maraj was the problem of international banks becoming reluctant to deal with banks in Bahrain and the Persian Gulf Arab states because of tight US regulation. “Many international banks have curtailed their correspondent services with regional and local banks. Some of the banks have refrained from dealing with exchange houses,” he said. “This has affected a wide sector of the population, especially the expatriates.”

Al Maraj said officials in Bahrain had met US Treasury officials last November and planned another meeting on the issue in April. US regulations, part of a tougher regime introduced since the financial crisis, include scrutiny of potential tax avoidance and anti-money laundering rules.

These have imposed extra costs on US banks, prompting many to reduce the number of foreign institutions with which they do business, and making international banks operating in the US more wary of ties with the Persian Gulf Arab states. Some banks in the Persian Gulf Arab states have been under particularly close scrutiny by US authorities.