Lebanese Bond Meltdown Eases Even as Russia Denies Aid Report
Lebanese Bonds Sink to Record Lows Amid Concern Over Repayment
(Bloomberg) -- Lebanon’s bonds pared this week’s tumble after a Beirut-based newspaper reported that Russia is considering financial support for the Arab nation -- despite the Finance Ministry in Moscow later denying it was in talks about aiding the government.
Russia plans to help Lebanon cope with its economic crisis and is considering a $1 billion deposit with its central bank, Al-Akhbar reported. If the money did come through, it might help Lebanon repay a $1.2 billion bond maturing on March 9.
It would “improve the chances of the bond due in six weeks being repaid,” said Richard Segal, a senior analyst at Manulife Investment Management in London. “I’d place these odds at 50:50.”
Lebanon has asked several countries for loans to prevent shortages of imported food and medicine.
Many of the nation’s Eurobonds slumped to record lows on Wednesday amid concern over the government’s solvency, with relief over the formation of a new cabinet last week proving short-lived.
- The price of Lebanon’s notes due May 2029 climbed 1 cent to 35.5 cents on the dollar as of 11.06 a.m. in London, after falling 7 cents in the previous five trading days
- The March security rose almost 3 cents, but was still hovering around a record low of 78.6; that equates to a yield to maturity of more than 250%
- A $2.1 billion bond maturing in April 2021 slid below 50 for the first time this week but was up 1.2 cents to 46.6 on Thursday
Lebanon is grappling with its worst economic and political crisis in decades, following months of protests that forced the previous government to resign in October. International reserves can only finance external needs until March 2021 before being depleted, according to Bloomberg Economics, and attempts to secure financial assistance from Gulf allies have so far come up empty.
Top of the agenda for the new government, led by Prime Minister Hassan Diab, will be whether to repay the March Eurobond. One of the world’s most indebted countries, Lebanon nevertheless has an unblemished record of bond repayment through war and political strife.
“Lebanon is running out of time to find a solution to service its debt and some type of debt restructuring appears inevitable within the next three to six months,” said Anders Faergemann, a London-based money manager at Pinebridge Investments, which sold all of its Lebanese bond holdings last year.
Finance Minister Ghazi Wazni met with central bank Governor Riad Salameh on Tuesday to discuss monetary and banking issues, according to a tweet from Wazni.
Earlier this month the central bank suggested getting local holders of the March notes to swap into longer-dated bonds as a way of preserving the country’s foreign reserves. But the Finance Ministry asked it to hold off after ratings agencies warned they would view it as a distressed exchange and downgrade Lebanon.
“The question is a bit more like the chicken or the egg: Do they pay the March 20 without a plan?” Zeina Rizk, director of fixed-income asset management at Arqaam Capital, said in an interview with Bloomberg Television in Dubai on Thursday. “If the March 20 is not paid, then you have a massive default. I think it should all come with a plan. Once we start having visibility on the fiscal front and therefore the monetary front, that would be a point where we should step in and buy the bonds.”
The cost of insuring Lebanon’s debt against default has soared to record highs. The government’s five-year credit-default swaps hover around 3,900 basis points, among the world’s highest.
Lebanon’s Eurobonds are the worst performers in emerging markets this year, losing more than 16%, according to Bloomberg Barclays indexes.
--With assistance from Paul Abelsky, Simone Foxman, Yousef Gamal El-Din, Manus Cranny, Alex Nicholson and Dana Khraiche.
To contact the reporter on this story: Netty Ismail in Dubai at nismail3@bloomberg.net
To contact the editors responsible for this story: Alex Nicholson at anicholson6@bloomberg.net, Srinivasan Sivabalan, Paul Wallace
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