Bahrain is planning to issue a $1 billion sovereign Islamic bond and has mandated three banks for the proposed sale, banking sources said.
BNP Paribas, Citigroup and Standard Chartered have been appointed to manage the issue, the bankers with knowledge of the move said, although they gave no idea as to when the issue would happen.
The Central Bank of Bahrain had initially invited banks to pitch for a $1bn conventional bond back in February but the results of that process were delayed because of the outbreak of political unrest in the kingdom.
While the political situation is not fully resolved, a decision to award mandates for an offering was made in the last couple of weeks, one of the sources said, with authorities choosing a sukuk route instead.
"A sukuk is the right instrument for them," the source said.
"A lot of Saudi investors would buy into it, while there will be appetite from the Islamic funds on the island. This is important because it is not going to appeal to international investors unless there is a huge premium."
Bahrain last tapped the international debt market in March 2010, when it printed a $1.25 billion ten-year bond through BNP Paribas, Deutsche Bank and JP Morgan.
The bid yield on Bahrain's $1.25 billion 5.5 per cent Eurobond maturing 2020 was at 6.110 per cent at 1126 GMT, according to Thomson Reuters data, its highest level since issue.