Lebanon’s parliament is in hot water with Eurobonds. Can the Central Bank help?

Published September 4th, 2014 - 11:17 GMT

The Central Bank will again come to the rescue of Parliament if lawmakers do not approve the issuance of new sovereign Eurobonds, bankers and economists said Wednesday. “Central Bank governor Riad Salameh will probably issue new Certificates of Deposit in foreign currency if MPs fail to hold a special session to approve a law authorizing theFinance Ministry to issue Eurobonds for 2014. This won’t be the first time this has happened,” economist Ghazi Wazni told The Daily Star.

The Central Bank has sold $2.2 billion of sovereign Eurobonds this year, and swapped LL6 trillion of 2013 and 2014 certificates of deposit with longer maturity ones, Salameh disclosed.

In April 2014, the Finance Ministry issued $1.4 billion of Eurobonds, of which $703.858 million worth were issued via exchange.

The transaction aimed to refinance market-issued Eurobonds maturing in 2014.

Economists and bankers estimate that Lebanon needs to roll over and issue new Eurobonds valued at $1.7 billion in 2014 and these new issues require the prior approval of the Lebanese Parliament.

Salameh has personally engineered the issuance of Eurobonds and CDs over the past few years in collaboration with the Finance Ministry to replace the maturing dollar-denominated bonds and issue new ones to finance the needs of the public sector.

Finance Minister Ali Hasan Khalil has repeatedly called on MPs to attend a special session to approve the 2014 draft budget and endorse a law authorizing his ministry to tap local and international markets for new Eurobonds.

But the deep political discord between March 8 and March 14 forces over the election of a new president has led many MPs to boycott any parliamentary session until the president is elected.

It is still not clear if Parliament Speaker Nabih Berri will be able to persuade all the lawmakers to attend a special session to discuss the draft budget and approve a law authorizing the Finance Ministry to issue new foreign-denominated bonds.

However, experts and bankers seemed confident the Central Bank would take action at the last minute and engineer Eurobond swapping.

“Some news media exaggerate the size of the outstanding bonds in Lebanon and sometimes they tend to mix the treasury bills with the Eurobonds. The T-bills have been managed by the Central Bank very effectively and prudently,” one banker said.

He added that Eurobonds had not yet exceeded 30 percent of the total outstanding bonds, and this meant that Lebanon was not too exposed to the foreign-denominated debt.

The banker noted that in recent years the Finance Ministry and the Central Bank had extended the maturity of the T-bills for up to 10 years with reasonable interest rates.

“Most of the Eurobonds are snapped up by the Lebanese commercial banks, while foreign investors subscribed to 20 to 25 percent of the issues only. I think it is wise to keep the share of foreign investors in the Eurobonds below 30 percent because these investors could withdraw their portfolios in Lebanon in the event of a political crisis or security incident,” the banker said.

By Osama Habib

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