Wednesday 16, May 2018 by Jessica Combes

Cash-strapped Bahrain targeted by US hedge fund

 

Greylock Capital Management says Bahrain is its next potential target

Greylock Capital Management, a hedge fund that holds the distressed bonds of Mozambique and Venezuela, has said that Bahrain is its next potential target, given that the cash-strapped Gulf nation has been slow to implement reforms compared with its richer neighbours following the dlump in oil oil prices in 2014.

“There’s been a lot of chatter around some of their fiscal stresses,” said Hans Humes, the chief executive officer of New York-based Greylock Capital Management, which specialises in emerging-markets distressed debt, Arabian Business reported.

In March the Bahrain central bank’s foreign assets dropped to their lowest levels in seven months, with the International monetary Fund (IMF forecasting the Kingdom’s debt to exceed 100 per cent of its economic output in 2019.

It is estimated that Bahrain’s net foreign assets will last up to three years which have sparked concerns over whether it will be able to maintain its currency peg to the dollar, according to data by Bloomberg Economics. However, last week Central Bank Governor Rasheed Al-Maraj said that the country has enough foreign reserves to maintain the currency’s peg, as a recovery in oil prices help ease pressure on its public finances.

In 2019 The Kingdom, like neighbours Saudi Arabia and the United Arab Emirates before it, will implement five per cent VAT, following its spending cuts and the reduction of subsidies, to generate revenue.

Bahrain’s dollar-denominated bonds plummeted this year, with the debt maturing in 2029 touching 87.2 cents on the dollar. The cost to insure Bahrain’s bonds against a default for five years climbed last week to 361 basis points, the highest since 2016, based on credit-default swaps, added Arabian Business, reporting that Bahrain, the Gulf’s smallest economy, has been relying on debt sales to finance budget and current-account deficits. It scrapped an offering in March after investors sought higher yields but raised $1 billion from Islamic securities.

In November, Bloomberg News reported that Bahrain had asked Saudi Arabia, the UAE and Kuwait for financial assistance.

“Saudi Arabia is often considered the lender of last resort for Bahrain due to converging political interests. In 2003, the Saudi kingdom granted Bahrain 50,000 barrels per day of oil in order to boost government revenues; we believe similar aid is possible in the future,” Regis Chatellier, an emerging-market strategist at Societe Generale in London, wrote in a note dated 10 May 10, according to Arabian Business.

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