(Bloomberg) – Lebanon’s top officials have said the government will not reimburse maturing Eurobonds, including a $ 1.2 billion bill due Monday, the first step in the country’s efforts to stabilize a economy in crisis.
The President organized a meeting with the President of the House, the Prime Minister, the governor of the central bank and the head of the association of banks as well as ministers and financial and legal advisers to discuss the options of the country in this which concerns Eurobonds.
“The participants agreed by consensus to support any decision by the government concerning debt management, except for the repayment of the debt that is due,” Antoine Choucair, the director general of the presidency, told the press.
The government is in session to formulate its final decision and Prime Minister Hassan Diab is expected to deliver a televised address to the nation.
The announcement paves the way for a long overdue bond overhaul in a country with one of the highest debt levels in the world, shrinking foreign currency reserves and double-digit inflation. The negotiations will be complicated by political divisions in Lebanon and the strong ownership of national banks.
The move follows weeks of political wrangling over how to get the country’s finances back on a sustainable path after foreign remittances – the country’s main source of hard currency income – have slowed.
Banks, investors
Local lenders, who hold nearly $ 14 billion in notes, have lobbied against a restructuring that would impose heavy losses on creditors, fearing to damage the country’s capital and reputation as a financial hub.
The central bank, which itself holds about $ 5.5 billion in debt, has offered to trade the March bond for longer-term instruments.
Bond investors are more skeptical about the prospects for an easy solution. The notes were mainly traded below 30 cents on the dollar, suggesting that the market expects the country to wipe around 70% of their value.
The valuations have further attracted investors, including Ashmore Group Plc, which has accumulated large positions in the March bond, as well as $ 1.3 billion in notes maturing in April and June. The investors, including distressed debt specialist Greylock Capital Management and Mangart Capital Advisors, have formed a group for possible negotiations with the government.
Lebanon has hired Lazard Ltd. and Cleary Gottlieb Steen & Hamilton as advisors.
Even with a decision to restructure debt, an agreement with bondholders can be complicated by political feuds and rampant corruption.
Training effects
Hezbollah, an Iranian-backed militant and political group, refused to seek financial assistance from the International Monetary Fund, fearing American interference. This removes an anchor from the economic reform that creditors are looking for when they cancel their debt.
Restrictions imposed by banks on access to the dollar have led to a parallel currency market which provides for a devaluation of more than 40% for the Lebanese pound, which has been pegged to the dollar at the same rate since 1997.
For a government in place since January, an economic overhaul may prove difficult to achieve.
“Deep sectarian divisions in the political system and high regional security risks will continue to hamper policy-making,” S&P Global Ratings said in a report last month. “A potential debt restructuring will have ripple effects on the domestic financial system.”
To contact the journalist on this story: Dana Khraiche in Beirut at [email protected]
To contact the editors responsible for this story: Nayla Razzouk at [email protected], Marton Eder, Gordon Bell
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(Bloomberg) – Lebanon’s top officials have said the government will not reimburse maturing Eurobonds, including a $ 1.2 billion bill due Monday, the first step in the country’s efforts to stabilize a economy in crisis.
The President organized a meeting with the President of the House, the Prime Minister, the governor of the central bank and the head of the association of banks as well as ministers and financial and legal advisers to discuss the options of the country in this which concerns Eurobonds.
“The participants agreed by consensus to support any decision by the government concerning debt management, except for the repayment of the debt that is due,” Antoine Choucair, the director general of the presidency, told the press.
The government is in session to formulate its final decision and Prime Minister Hassan Diab is expected to deliver a televised address to the nation.
The announcement paves the way for a long overdue bond overhaul in a country with one of the highest debt levels in the world, shrinking foreign currency reserves and double-digit inflation. The negotiations will be complicated by political divisions in Lebanon and the strong ownership of national banks.
The move follows weeks of political wrangling over how to get the country’s finances back on a sustainable path after foreign remittances – the country’s main source of hard currency income – have slowed.
Banks, investors
Local lenders, who hold nearly $ 14 billion in notes, have lobbied against a restructuring that would impose heavy losses on creditors, fearing to damage the country’s capital and reputation as a financial hub.
The central bank, which itself holds about $ 5.5 billion in debt, has offered to trade the March bond for longer-term instruments.
Bond investors are more skeptical about the prospects for an easy solution. The notes were mainly traded below 30 cents on the dollar, suggesting that the market expects the country to wipe around 70% of their value.
The valuations have further attracted investors, including Ashmore Group Plc, which has accumulated large positions in the March bond, as well as $ 1.3 billion in notes maturing in April and June. The investors, including distressed debt specialist Greylock Capital Management and Mangart Capital Advisors, have formed a group for possible negotiations with the government.
Lebanon has hired Lazard Ltd. and Cleary Gottlieb Steen & Hamilton as advisors.
Even with a decision to restructure debt, an agreement with bondholders can be complicated by political feuds and rampant corruption.
Training effects
Hezbollah, an Iranian-backed militant and political group, refused to seek financial assistance from the International Monetary Fund, fearing American interference. This removes an anchor from the economic reform that creditors are looking for when they cancel their debt.
Restrictions imposed by banks on access to the dollar have led to a parallel currency market which provides for a devaluation of more than 40% for the Lebanese pound, which has been pegged to the dollar at the same rate since 1997.
For a government in place since January, an economic overhaul may prove difficult to achieve.
“Deep sectarian divisions in the political system and high regional security risks will continue to hamper policy-making,” S&P Global Ratings said in a report last month. “A potential debt restructuring will have ripple effects on the domestic financial system.”
To contact the journalist on this story: Dana Khraiche in Beirut at [email protected]
To contact the editors responsible for this story: Nayla Razzouk at [email protected], Marton Eder, Gordon Bell
bloomberg.com“data-reactid =” 48 “> For more articles like this, visit us on bloomberg.com
Subscribe now to stay one step ahead of the most trusted source of business information. “data-reactid =” 49 “> Subscribe now to stay ahead with the most trusted source of business information.
© 2020 Bloomberg L.P.
