Frequently Asked Questions (FAQ)

Where can I get more information on what is available to trade?

Through SICO’s Global Markets team, you can buy bonds, sukuk or Bahrain government treasury bills. You can get more information on what are available by contacting our Global Markets team on +97317575207/5204 or – emailing them at globalmarkets@sicobank.com.

How do I buy or sell bonds or sukuk?

By contacting our Global Markets team on +97317575204/5207 or emailing them at globalmarkets@sicobank.com.

What are Treasury Bills?

Treasury Bills are a short-term financial instrument that is issued by the government issuance department at the Central Bank of Bahrain on Behalf of the government of The Kingdom of Bahrain. Similar to ‘Zero-Coupon Bonds’, Treasury Bills are issued at a discount and mature at the ‘Par value’ (Face value). These short-term instruments issued by the Central bank of Bahrain (CBB) range from 3 to 12 months.

The Government of Bahrain also issues short-term Sukuks. These are very similar short term financial instruments however unlike the conventional treasury bills, the sukuks are Shariah Compliant. There are two types of Sukuks issued by the Central Bank of Bahrain: the 3-month Al Salam Islamic Sukuk and the 6-month Ijara Sukuk. There is NO 12-month Sukuk issued by the CBB. Islamic Sukuks are issued at the par value NOT at a discount.

Tenors / Schedule:

Conventional Issuances (sold at a discount and mature at par);

– 3 Month Conventional Treasury Bill (Auctions 3 times a month)

– 6 Month Conventional Treasury Bill (Auction once per month)

– 12 Month Conventional treasury Bill (Auction once per month)

Islamic / Shariah Compliant Sukuk Issuances (sold at par);

– 3-month Al Salam Islamic Sukuk (Auction once per month)

– 6-month Ijara Sukuk (Auction once per month)

How does the conventional Treasury Bill auction work?

Conventional T-bill auctions are blind auctions. Therefore, the rate of return is not disclosed prior to the auction, however we can provide guidance.

As individual investors, you may opt to bid at the weighted average to maximize the opportunity of full allocation from the issuance. If you are to bid at the weighted average, we are unable to utilize a full / exact cash amount as the weighted average rate and price are unknown prior to the results of the auction. Therefore, only a nominal order / quantity can be reflected in our bid. If you are to bid a nominal quantity, the actual net spend will be less than the order size due to the Treasury Bills being issued at a discount.

If you wish to utilize most of the amount, then you may opt to bid at the weighted average, with calculation based on the previous weighted average. This might cause a discrepancy between the total invested principal and the actual cost of the deal, if the current rate is more or less than the previous weighted average.

Alternatively, you may wish to bid at a specific rate, in which case we are able to calculate the price and exact net spend of the client. This option, however, runs the risk of the client not being awarded allocation if the rate of their bid is rejected.

The difference between a client’s cost (excluding charges) and the maturing par value is representative of the profit to be made.

Islamic Issuances

The rate of return of Islamic Issuances are confirmed the day prior to the auction. As mentioned, Islamic issuances are issued at the par value not a discount, therefore if full allocation is awarded, a nominal order of BHD 20,000 will cost the client BHD 20,000 excluding commission and VAT charges.

The profit on Islamic issuances is paid on top of the principal investment upon maturity.

How can I subscribe?

To subscribe, an individual must have an active SICO account. Existing clients must ensure their SICO accounts are updated (KYC).

For time investors with SICO, the client will need to ensure their account is prefunded prior to the auction date. We collect orders until 10 AM at the latest on the day of the auction. Clients will receive automated trade confirmations of their allocations before the end of the auction day.

*The minimum Investment amount is BHD 5,000. Clients can opt to subscribe in both BHD or USD.

Allocations

Full allocation is NOT guaranteed. Clients must be aware that these issuances from the CBB are often oversubscribed and therefore a client’s order may be partially filled. While we try to achieve the best possible allocations for clients by placing their orders in a ‘Non-competitive’ tranche of the auction, there remains a chance that allocations are partially filled.

Settlement

The settlement date is the issue date of the Treasury Bill / Sukuk (when it starts) which is always two business days after the auction date (T+2). Clients’ accounts must be adequately funded to cover the investment by the settlement date at the latest to avoid overdrawn charges.

Rollovers / Renewals

Clients will be notified of an upcoming maturity the week prior. An email will be sent to clients the week before a maturity to give them the option to either rollover / renew or opt to allow their maturing position to be credited to their account. SICO will provide an indication of where the rates currently are.

Rollovers must also be confirmed by 10am on the auction dates.

The pricing of the T-Bill will be based on the local money markets yield curve.

Liquidation / Sale

We offer clients the facility to sell / liquidate their position prior to the maturity date without incurring any penalties. The sale of the position will be subject to commission + VAT charges, however. Similarly, to rolling over, the pricing and rate offered when liquidating your position will reflect the local money market yield curve.

Charges

The commission charged on the purchase of Treasury Bills or short-term sukuks is 5bps (0.05%) on the principal amount invested plus VAT (10% of the commission). The Minimum charge is a commission of BHD 5 + BHD 0.500 VAT (BHD 5.500). The client is charged when transacting (either buying or selling) and if they rollover into a new issuance. They are not charged upon maturity.

Examples:

Conventional 3-Month Treasury Bill:

Nominal: BHD 40,000

Price: 98.36118

Rate: 6.59%

Principal: BHD 39,344.47

Commission: BHD 19.672 VAT: BHD 1.967

Total: BHD 39,366.11

Islamic Sukuk:

Nominal: BHD 40,000

Price: 100

Principal: BHD 40,000

Commission: BHD 20.000 VAT: BHD 2.000

Total: BHD 40,022.00

Profit / Return

Conventional: The difference between your Net cost and the Nominal amount.

BHD 40,000 – BHD 39,366.11 = BHD 633.89

Islamic: The nominal amount multiplied by the rate, divided by 360 and then multiplied by the number of days of the issuance (91 or 182 days). If the rate is 6% for the 3 month Al Salam Sukuk, the breakdown is as follows:

(BHD 40,000 x 0.06) / 360 = BHD 6.666*

BHD 6.666* x 91 days = BHD 606.667