Lebanon has designated four Lebanese and international banks to co-manage the issuance of $1.3 billion in new eurobonds, sources said Monday.
According to the sources, Fransabank, SGBL, Citigroup and Standard Chartered Bank have been named by the Finance Ministry to handle the issuance of the new bond.
“The interest rates and maturity have not been determined yet. But all we know is that part of issue will replace maturing bonds and the rest is new to meet the needs of the state,” a source familiar with the deal said.
He expected the issue to be oversubscribed by mainly Lebanese banks and investors. But the head of economic research at Byblos Bank Nassib Ghobril believed that Lebanon could have sent a better signal to the international market by not replacing the maturing bonds or issue a new one.
“It would have been a much better signal to the market if they paid entirely the eurobond and retired the eurobond instead of refinancing or issuing new bonds,” Ghobril said.
He added that the government could have demonstrated to the world that it could pay off all the debt plus the interest without the need to tap the market.
In February 2015, Lebanon succeeded in selling $2.2 billion in eurobonds, the largest single issue in the history of the country.
Citi, the global financial services group, said that the Lebanese banking system has the capacity to keep financing the government before the banks’ balance sheets come under stress. It noted that the government’s dependence on banks for its elevated financing needs makes deposit growth a key indicator for the banks’ ability to continue buying government securities.
But in September of this year Standard & Poor’s affirmed Lebanon’s long- and short-term foreign and local currency sovereign credit ratings at “B-/B” and revised the outlook on the long-term ratings to “negative” from “stable.” It attributed the change to negative impact on growth from domestic political uncertainties and regional instability.
It noted that the protracted political instability could further affect economic growth and limit the ability of policymakers to implement medium- and long-term macroeconomic reforms.
This downgrade will in theory make it difficult for Lebanon to market new eurobonds in international markets. However, Lebanese banks will continue to subscribe to these bonds even at interest rates below those of “B-/B” category.
S&P forecast the fiscal deficit to grow from 6.2 percent of GDP in 2014 to 9.8 percent of GDP in 2015, despite expected savings this year of between 1.5 percent of GDP to 2 percent of GDP from lower transfers to Electricite du Liban amid low oil prices. It also forecast the net public debt to increase from 116 percent of GDP in 2014 to 120 percent of GDP in 2016.
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