Distressed-Debt Funds Team Up as Lebanon Bonds Plunge to Records

(Bloomberg) -- Lebanon’s foreign debt sank to a record low as speculation mounted that the government may not repay a $1.2 billion Eurobond due in less than a month.

Investors are pondering what shape a default might take, with the crisis-ridden nation’s government wrangling over whether to continue servicing its liabilities. Distressed-debt investor Greylock Capital Management and Switzerland-based Mangart Capital Advisors announced they and other bondholders had formed a group to talk to the government about its options.

The $1.2 billion of notes, due on March 9, plunged 7 cents to 74.7 cents on the dollar Wednesday. Lebanon’s $2.1 billion bond maturing in April next year fell 7 cents to 39, with the yield climbing above 100% for the first time.

“This group will facilitate communication between disparate creditors and stands by to engage with the Lebanese Republic in any discussions,” Hans Humes, chief executive of New York-based Greylock, said in an emailed statement.

The government should restructure its debt as soon as possible to prevent Lebanon’s economic and political crisis from worsening, according to Franklin Templeton, which oversees about $690 billion of assets worldwide.

The nation’s Eurobonds, most of which trade at less than 35 cents on the dollar, and its credit-default swaps, which have soared to record highs, already reflect expectations of a default within the next 12 months, said Mohieddine Kronfol, the firm’s chief investment officer for Middle Eastern and North African fixed income.

“The reality is whether they pay this March Eurobond or not, the market is saying that Lebanon will default,” Kronfol, who doesn’t hold the nation’s debt, said in an interview in Dubai. “The longer you wait, the more pressure you’re going to put on the country.”

The International Monetary Fund said Wednesday it will offer Lebanon technical advice, after receiving a request from the Lebanese authorities.

“Any decisions on debt are the authorities’, to be made in consultation with their own legal and financial advisors,” the IMF said in a statement.

Several Lebanese politicians have said the country shouldn’t seek an IMF bailout package such as the one Argentina got in 2018. That, they’ve said, may require Lebanon to end its currency’s peg to the dollar, which has been in place since the late 1990s, and raise taxes.

“The bonds are cheap, but without having the right political construct, a credible structural reform plan and the right partners in place, it will be very difficult for anyone to have confidence,” Kronfol said.

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, Paul Wallace, Paul Abelsky

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