Bahrain hired investment bank Lazard to advise on how to repair its strained public finances, according to people with knowledge of the matter, as the island kingdom seeks to secure crucial support from rich neighbours to avoid a currency devaluation.
Lazard is helping Bahrain evaluate fiscal reforms to help ease pressure on the state’s budget, the people said, asking not to be identified because the details aren’t public. The options include raising capital from international markets, one of the people said. Bahrain’s Eurobonds dropped after the report.
Lazard declined to comment. Bahraini officials did not immediately respond to requests for comment.
Bahrain, one of the most vulnerable Arabian Gulf economies to lower oil prices, confirmed last week that it was in talks with Saudi Arabia, the UAE and Kuwait for support that would help reduce ballooning debt and shore up foreign-exchange reserves. Bloomberg News reported last year that the three countries had asked authorities to do more to bring finances under control before receiving aid.
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Doubts over whether the Gulf countries would come to the rescue battered Bahraini assets last month, raising the kingdom’s credit risk by the most on record. Without the aid, investors had feared that policy makers would be forced to abandon the Bahraini dinar peg to the dollar, raising questions about the ability of other Gulf nations to sustain their own currency policies.
Bahrain’s bonds trimmed losses after last week’s announcement, but economists say the kingdom’s ability to tap global bond markets depends on details of the assistance package and how quickly the money can be delivered. At the current rate of foreign-exchange reserve depletion, the government will likely need external funding by October, according to Carla Slim, an economist for Standard Chartered in Dubai.
Bonds dropped on Tuesday, sending the yields on securities maturing in 2020, 2028 and 2029 higher, according to data compiled by Bloomberg.
While the appointment of Lazard is not necessarily "negative for bonds", it could imply that the “financial situation is worse than earlier assumed if the advice is viewed as necessary,” said Richard Segal, senior analyst at Manulife Asset Management. “These types of firms are commonly associated with borrowers about to restructure, although in this case it could be precautionary.”
Bahrain, a key Saudi ally and home to the US Fifth Fleet, said on June 28 it will form a committee to devise plans to balance the budget. The group, whose members include the finance minister and central bank chief, will present its plans to the prime minister, who will take a decision “at the earliest possible time".
At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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UAE currency: the story behind the money in your pockets
Company profile
Name: Infinite8
Based: Dubai
Launch year: 2017
Number of employees: 90
Sector: Online gaming industry
Funding: $1.2m from a UAE angel investor
