Alba turns to debt market to fund a plan to boost production

Aluminium Bahrain (Alba), which is 70 per cent owned by the state, expects to pay similar yields to the government for a record borrowing plan after the nation’s credit risk fell to the lowest in almost a year.

The metals maker known as Alba plans to raise $2.5 billion (Dh9.1 billion) from bonds, Islamic finance and export credit, Chief Executive Officer Laurent Schmitt said on July 30. The cost to insure Bahrain’s debt against non-payment for five years fell almost twice as much as the regional average this quarter, according to data provider CMA. The island kingdom sold $1.5 billion of 10- year bonds at 6.125 per cent in June.

Alba is returning to the debt market after a decade to fund a plan to boost production even as US and European competitors shut plants. The company, which benefits from subsidized regional energy costs, is betting aluminium prices will rebound from the past year’s 22 per cent slump. Bahrain’s economic growth will quicken to 3 per cent this year from 1.8 per cent in 2011, forecasts compiled by Bloomberg show.

“Given the government’s majority ownership, which gives lenders additional comfort with regard to the credit risk, Alba should be able to achieve an attractive cost of funding,” said Chavan Bhogaita, head of the markets strategy group at National Bank of Abu Dhabi PJSC. “There is likely to be decent appetite based on the demand we witnessed for the government’s latest issue.”

Bahrain, rated at Standard & Poor’s second-lowest investment grade of BBB, received more than $6 billion in bids for the bonds it sold in June, suggesting investors are confident in the stability of the nation that was most-affected in the six-member Gulf Cooperation Council by popular unrest in Arab countries last year.

Regional investors bought 43 per cent of the bonds, while 32 per cent were from Europe, 14 per cent from the U.S. and 11 per cent from Asia, the government said in a statement in June.

Bahrain’s five-year credit default swaps fell 70 basis points this quarter to 275 yesterday, the lowest since Aug. 10, 2011, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. That outpaced the average 36 basis-point decline to 181 of the four GCC countries for which the contracts are traded.