Insider Economy Lebanon struggles over Eurobond decision as clock runs down

Lebanon struggles over Eurobond decision as clock runs down

Lebanon’s cash-strapped authorities are struggling to decide what to do about a $1.2 billion Eurobond maturing in March but are leaning towards repayment for foreign holders and a swap for local investors, political and banking sources said on Tuesday.

Lebanon, which has never defaulted on its hefty debt, is in the throes of a financial and economic crisis that has shattered confidence in banks and ignited protests against a political elite blamed for steering the country towards collapse.

A government source and two senior political sources said big differences remained over options: pay in full, ask local holders of the issue to swap for longer-dated notes delaying payment by at least 10 years, or simply not pay.

Two of those sources and three senior bankers said a swap would ease pressure on dwindling foreign currency reserves and buy time. Three sources said the government has not initiated any steps for a default scenario.

Lebanon’s dollar bonds have gained in recent days, with the rally particularly pronounced among shorter-term bonds, signalling growing expectations that the government might pay its most immediate debt obligations.

The country has $2.5 billion in principal and $1.9 billion in coupon payments on Eurobonds due in 2020.

The March 2020 issue has added 12% in the past four trading sessions and was trading at 84.6 cents to the dollar on Tuesday, according to RRPSBONDS data.

In contrast, Lebanon’s longer-dated bonds are trading at 50 cents to the dollar or lower, indicating a higher probability of a debt default or restructuring at some point.

The government source said that Lebanon, grappling with one of the world’s heaviest debt burdens, would not be able to avoid a debt restructuring further down the road and would need assistance from the International Monetary Fund, which would require consensus in Lebanon’s fractured political landscape.

“Kicking the can down the road by paying means a lot of money out of scarce resources and there are more maturities coming in April and June, so it’s only a few months of extra breathing space,” said Paul McNamara, investment director at asset manager GAM.

The two political sources said Prime Minister Hassan Diab preferred making the March payment on time to avoid any blemish on the country’s reputation as his government, formed last month, tries to win back the confidence of international donors.

“He does not want to start his term with a default on debt obligations and give any negative sign to the international community,” one of the political sources told Reuters.

Ratings agencies have warned a swap would constitute a selective default.

One of the senior bankers said he expected the government to ask domestic holders to agree on a swap. “This is bad for the banks … but it’s not like we have much of a choice,” he said.

(Reuters)

Top Stories

Eight new coronavirus cases detected out of 2,893 tests

The Ministry of Health has announced that 8 new cases of the SARS-CoV-II virus were detected in Cyprus over the past 24 hours out...

Omonia: 60 people to self-isolate due to covid case

Omonia's delegation, that travelled to Athens for the first match with Olympiakos in Faliro in the context of the Champions League playoffs (0-2 defeat),...

Two journalists stabbed near Charlie Hebdo’s old offices – France opens anti-terror probe

France opened an anti-terror investigation after two journalists were stabbed in Paris on Friday near the former offices of the Charlie Hebdo satirical magazine...

UK’s Tesco blocks bulk-buying of toilet roll and flour

Britain's biggest supermarket Tesco will prevent customers from bulk-buying flour, pasta, toilet rolls and anti-bacterial wipes to prevent a re-run of the COVID-19 stockpiling...

COVID-19: Average age in Cyprus is 39 (tables)

Here are the infographics, by the Ministry of Health, with statistics on the course of the coronavirus until September 22nd. The average age in...

Taste

Sheftalies

Sheftalies, a very tasty dish from the charcoal grill, are minced meat shaped into small sausages and wrapped in “panna” (suet). Panna is a...

Spicy grilled soutzoukakia

Place all ingredients for soutzoukakia in a bowl and mix well, preferably using a food processor, until well combined. Using the mixture, form cigar-shaped...

Souvlakia

Pork souvlaki: Put the meat and all the other ingredients in a bowl (not metal) and mix well. Cover the bowl and keep in...

Pastelli (Carob Toffee)

The nutritional sweet of Pastelli is made with the syrup of carob pods, produced by boiling their pulp until it forms a thick, sticky...