Bahrain seeks $350 mln for maturing Islamic bonds

By Daliah Merzaban

MANAMA (Reuters) - Bahrain's central bank plans to renew $350 million worth of five-year Islamic bonds before July and does not expect a global credit crisis will hit pricing, its central bank governor said on Monday.

The central bank of the smallest Gulf economy will combine two Islamic bonds, or sukuk, expiring in April and May into a single bond priced at between 30 to 35 basis points above the London Interbank Offered Rate (Libor), Rasheed al-Maraj said.

A $100 million fixed-rate bond maturing in April was priced at 3.75 percent in 2003 while a $250 million sukuk expiring in May was priced at 60 basis points above Libor, he said.

"We are renewing $350 million worth of sukuk that will mature soon for the same term," Maraj told the Reuters Islamic Finance Summit. "We will combine them into one facility," he said.

Several Gulf borrowers were forced to scrap bond sales last year because of the credit crunch triggered by U.S. mortgage defaults.

Spreads for more than $15 billion of Islamic bonds that are part of the HSBC-DIFX Sukuk index more than doubled over the London Interbank Offered Rate (Libor) to 125 basis points, between the end of June and the end of October, according to

HSBC.

Maraj said he was confident the central bank could get 30 to 35 basis points above Libor. The bank had no plans to issue any new bonds "for the time being", he added.

"We set for ourselves a program for promoting sukuk and we are continuing with this," Maraj said. "We want to create a benchmark for the market for issuing a short- and medium-term sukuk."

Subprime worries made investors more averse to risk, widening the spread of many bonds, especially in emerging markets, making borrowing more expensive.

Islamic law bans interest and investments instead pay a return derived from underlying physical assets.

(For Reuters content on Islamic finance, click on ISLAMIC)

(Reporting by Daliah Merzaban; Editing by Rory Channing)