Lebanon appoints four banks for $1.5B eurobond issue

Published March 12th, 2017 - 11:00 GMT
Barclays, Byblos Bank, Societe Generale de Banque au Liban and JPMorgan will co-manage the eurobonds issuance.  (World Finance)
Barclays, Byblos Bank, Societe Generale de Banque au Liban and JPMorgan will co-manage the eurobonds issuance. (World Finance)

Lebanon's Finance Ministry has designated Barclays, Byblos Bank, Societe Generale de Banque au Liban and JPMorgan to co-manage the issuance of $1.5 billion in eurobonds to finance the public debt.

They will be split into three tranches 10 years, 15 years and 20 years.

A banker told The Daily Star that the Lebanese government will not have any difficulty in selling these eurobonds to investors.

“I think the new issue will be oversubscribed because there is an appetite for more bonds with relatively high return. The interest rates on these bonds have not been decided yet. But I expect the investors may demand a higher interest rate on these sovereign bonds after the last decision of the U.S. Federal Reserve to raise the rate by 25 basis point,” he said.

This issue will replace $1.5 billion eurobonds that matures on March 20 of this year.

The Finance Ministry is authorized to issue another $3 billion eurobonds for 2017.

Another banker said that the Lebanese commercial banks are flush with cash and they are always looking for investments.

“I expect local banks to subscribe heavily in the new sovereign bonds. Banks will continue to finance the public debt as long as it is needed,” the banker explained.

“The ministry was intending to look at three potential tranches of 10 years, 15 years and 20 years. We will be issuing under the existing program which is called the MTN – the medium-term notes – program,” a Finance Ministry official told Reuters.

The governments since the Taif Accord were compelled to tap the local and international markets to finance the public debt which now stands at more than $74 billion.

The cost of debt servicing is close to $4 billion annually, making it the biggest spending item in the government budget.

Rating agencies have constantly warned Lebanese banks not to absorb more sovereign bonds as this would increase their exposure to the public debt.

In July 2016, Moody’s rating agency warned that the increasing exposure to the growing public debt in Lebanon is a major source of credit risk for Lebanese banks.

“Our outlook for the Lebanese banking system remains negative, primarily reflecting our expectations of continued weak economic growth that will slow credit expansion and raise asset quality pressure for banks, driven by the conflict in neighboring Syria and a domestic political deadlock that discourages private investment and impairs the government’s ability to enact structural reforms and approve capital spending.”

 

 

 

Copyright © 2019, The Daily Star. All rights reserved.

You may also like