(repeats story from January 27)

By Archana Narayanan and David French

DUBAI Jan 27 Bahrain is working with banks
about a potential re-tap of a dollar-denominated two-part bond
issued late last year, sources with knowledge of the deal told
Reuters on Wednesday.

The finances of the small energy exporter, with less
generous oil and financial reserves than its neighbours, have
been hard hit by the drop in oil prices, which touched a 12-year
low earlier this month.

The kingdom is working with the same five banks which
arranged its $1.5 billion bond in November, which was split
between five- and 10-year portions paying 5.875 percent and 7.0
percent respectively, according to three sources with knowledge
of the matter.

Any potential re-tap could happen within the next two to
three months, one of the sources added.

Bahrain’s central bank, which organises the kingdom’s
borrowing, didn’t respond to a request for comment. The sources
spoke on condition of anonymity as the information is private.

Under a tap transaction, a ‘new’ deal is issued which is, in
effect, a copy of an existing bond with the same terms and
conditions. However, the pricing is usually adjusted to reflect
the market performance between the issuances.

Taps are rare in the Middle East, with only a handful in
recent years, but the structure would have benefits for Bahrain,
mostly due to the speed at which the kingdom could access the
market instead of waiting for new documentation to be drawn up
for a separate issue.

This could potentially save the kingdom from paying much
higher interest rates, as a combination of significant issuance
this year by other Gulf entities squeezes available liquidity
and markets weigh the risk of an eventual U.S. interest rate
rise.

Gulf governments look set to borrow from the international
bond market at a record pace this year as they cover budget
deficits — which are expected to near $140 billion, or 11
percent of gross domestic product.

Qatar is talking to potential arrangers of a first sovereign
sukuk in nearly four years, sources told Reuters earlier this
week, and Sharjah, one of the seven United Arab Emirates, sold a
$500 million Islamic bond earlier this month.

With the kingdom on the last rung of investment grade
according to international credit-rating agencies, any further
downgrade would put its debt into junk status, ruling it out for
some international investors and pushing up borrowing costs
further.

Bank ABC, BNP Paribas, Citigroup, HSBC and JP Morgan
arranged last year’s transaction and are working again with the
kingdom.

At 1430 GMT, the five-year portion of the existing bond,
which matures in January 2021, was trading to yield 5.63 percent
and the ten-year bond maturing in January 2026 was trading at
7.20 percent, according to Thomson Reuters data.

(Editing by Ruth Pitchford)