Lebanon: Government to tap local market in issuing $5 billion in new bonds
The Finance Ministry is expected to tap the local market for financing soon to issue $5 billion worth of Eurobonds and treasury bills to cover the public debt in 2012. The ministry, in collaboration with the Central Bank, intends to announce the names of the banks which will co-manage the new issue.
The $5 billion bonds will be split into two categories: the first for $2 billion in Eurobonds, and the second $3 billion batch to replace the outstanding bonds both in Lebanese pounds and foreign currencies. Lebanon has been aggressively seeking new funds through the issuance of bonds, taking advantage of a gradual drop in interest rates in the international markets.
Finance Minister Mohammad Safadi has even suggested that the government issue bonds on the international market since the interest on foreign bonds is far lower than on bonds offered in the local market.
The Finance Ministry issued $1.2 billion in Eurobonds on Aug. 2 in two groups: the first $500 million due in November 2016 at an interest rate of 4.75 percent, the lowest interest rate achieved by Lebanon on the issuance of foreign currency since 1994; and the second, $700 million with an interest rate of 6.2 percent, through the reopening of a Eurobond due in October 2022 at an interest rate of 6.1 percent. Demand for the issue was four times the value of the bonds on offer, with foreign investors obtaining 21 percent of the total issued.
But Lebanese banks, which hold 51.5 percent of the government’s debt, sent a clear message to the Finance Ministry that they have no intention of lending the state more money as this would increase their risk exposure. Bankers said that they are willing to roll over the maturing Eurobonds and bonds to finance the needs of the state. Banks want foreign debt below 40 percent of total debt.