Poland expressed fury at its downgrade in January, which saw the new bonds tank 40bp in the grey market, but let the new securities settle. Bahrain suffered a 20bp hit on its 2021s on news of its downgrade, and pulled the deal before settlement.
Investors and bankers initially welcomed Bahrain’s approach. It seemed more investor friendly than Poland’s insistence that the show would go on and investors take the pain.
One influence could have been Bahrain's likely greater need of capital markets access this year. It is expected to raise $3bn-$4bn in 2016 as lower oil price hit its finances. Also, unlike Poland, the Bahrain downgrade was an unscheduled rating action.
But as Thursday wore on and Bahrain's aftermath developed, dissent grew. Whether the deal was pulled or not, all trades stand and trades that were done on the basis of the tap going ahead were forced to find the existing bonds to cover shorts.
One trader described the resulting mess as “one of the top 10 EM balls ups of all time”. He also said the sovereign would be punished for it in the pricing of future new issues.
So, to pull or not to pull? There seems to be no obvious answer. Certainly traders must take their share of risk. But at a time when sovereign downgrades seem par for the course, an issuer that needs investors more than they need it could certainly have done a bit more to engage with the rating agencies to see what was in their thoughts. Rating agencies must be impartial of course, but issuers must above all do everything they can to be responsible.