LONDON: State-run Bahrain Telecommunications (Batelco) plans to buy back a third of outstanding bonds due in 2020, using excess liquidity from a scrapped acquisition to lower its debt servicing costs.

The company has offered to buy back up to $200m in principal amount of its 4.25 percent, $604.4m guaranteed notes maturing in 2020, with the price being determined through a modified Dutch auction process.

The notes rallied by nearly two points after the tender was announced on Monday, with the minimum purchase price set at $970 per $1,000 of principal tendered. The bonds were trading at a bid price of 98.013 as of 1020 GMT yesterday, 

according to Tradeweb, up from 96.25 just before the announcement on Monday. 

Richard Segal, a fixed-income analyst at Jefferies, said the deal will be mutually beneficial for the company and bondholders. 

“Investors will gain to the extent they will have liquidity from the company at a certain price, whereas Batelco could benefit, albeit slightly, from the opportunity of buying back the debt at a little below par,” Segal wrote in a note to clients.

“In addition, there will be the conceptual benefit to bondholders from the signal spare liquidity will be utilised to reduce gross debt, as opposed to considering other growth opportunities,” he added.

The buy-back is not expected to strain Batelco’s liquidity 

position, as the company reported cash reserves of BD199m 

at the end of 2013, more than 

double the BD99m held at the end of 2012. Batelco began buying back its 2020 notes, through which it originally raised $650m, in November. The company’s annual results show $39.5m worth of the notes was bought back as of December 31.Reuters