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Rating Action:

Moody's assigns B2 rating to drawdown from Bahrain's sukuk issuance program

09 Oct 2020

Singapore, October 09, 2020 -- Moody's Investors Service, ("Moody's") has today assigned a B2 senior unsecured rating to the $1 billion 7-year sukuk (trust certificate) instrument issued on 16 September 2020 under the Trust Certificate Issuance Programme established by CBB International Sukuk Programme Company S.P.C., a single person limited liability company incorporated in the Kingdom of Bahrain whose proprietor is the Central Bank of Bahrain and whose debt and trust certificate issuances are, in Moody's view, ultimately the obligation of the Government of Bahrain (B2 stable).

The rating was initiated by Moody's Investors Service and was not requested by the rated entity.

RATINGS RATIONALE

The B2 sukuk instrument rating mirrors the Government of Bahrain's B2 issuer rating. Bahrain's issuer rating is supported by the sovereign's high per capita income levels and a relatively well diversified economy compared to the regional peers, and constrained by high and increasing government debt burden and significant government liquidity and external vulnerability risks. Bahrain benefits from demonstrated financial support from its neighbors, which has helped the sovereign to retain access to confidence-sensitive funding markets.

The payment obligations associated with the sukuk instrument are considered by Moody's to represent direct obligations of the Government of Bahrain, ranking pari passu with all other unsecured indebtedness of the Government of Bahrain and the holders of the sukuk are therefore effectively exposed to Bahrain's senior unsecured credit risk.

Moody's notes that its instrument rating does not express an opinion on the structure's compliance with Shariah law.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

As an oil exporter, Bahrain's environmental risks are predominantly derived from carbon transition. Under a scenario similar to the International Energy Agency's Stated Policies scenario of a gradual slowdown and eventually fall in hydrocarbon demand, Bahrain's credit profile would face downward pressure. Bahrain is also one of the world's ten most arid states susceptible to material water risk. The majority of Bahrain's water is produced by desalination plants, which are highly energy intensive.

Social risks currently exert moderate impact on Bahrain's credit profile. Communal tensions that led to violent street protests during 2011 have since subsided, partly due to the government's increased spending on housing and education in disadvantaged and economically marginalized communities. Moody's regards the global coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.

Governance risks in Bahrain primarily relate to limited transparency on fiscal data and fiscal policy as well as poor disclosure on the financial performance and debt levels of government-related entities.

GDP per capita (PPP basis, US$): 50,931 (2019 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 1.8% (2019 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 1.2% (2019 Actual)

Gen. Gov. Financial Balance/GDP: -9.5% (2019 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: -2.1% (2019 Actual) (also known as External Balance)

External debt/GDP: [not available]

Economic resiliency: baa3

Default history: No default events (on bonds or loans) have been recorded since 1983.

On 07 October 2020, a rating committee was called to discuss the rating of the Government of Bahrain and the instrument issued under the Trust Certificate Issuance Programme established by CBB International Sukuk Programme Company S.P.C. The main points raised during the discussion were: The issuer's credit fundamentals and rating level, along with the terms and conditions of the instrument issued under the program.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

Given the B2 instrument rating mirrors the B2 issuer rating of the Government of Bahrain, the same factors and considerations apply. Over time, a more rapid and significant fiscal consolidation than currently expected, that would set the government's debt burden on a stable and eventually declining path, would likely prompt Moody's to upgrade the rating. Effective fiscal consolidation would be reflected in a durable and material reduction of Bahrain's fiscal vulnerability to declines in oil prices as measured by falling fiscal break-even oil prices. A sustained rebuilding of the central bank's foreign exchange buffers that would materially decrease external vulnerability risks would also likely lead to an upgrade.

Moody's would likely downgrade the rating if it became apparent that fiscal consolidation will be materially slower than currently envisaged, potentially threatening the disbursements of GCC support and/or further undermining investors' confidence. In this scenario, fiscal metrics would weaken and liquidity and external vulnerability risks would rise again, possibly rapidly. More generally, protracted delays in disbursements from the GCC that would lead to a further significant erosion of foreign exchange reserves and undermine market confidence in the GCC backstop would also put negative pressure on the rating. Furthermore, lower oil prices for materially longer than Moody's currently expects could weaken the capacity and willingness of the GCC neighbors to support Bahrain.

The principal methodology used in this rating was Sovereign Rating Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.

The local market analyst for this rating is Alexander Perjessy, +971 (423) 795-48.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is unsolicited.

a.With Rated Entity or Related Third Party Participation: NO

b.With Access to Internal Documents: NO

c.With Access to Management: NO

For additional information, please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Martin Petch
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Marie Diron
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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