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16 January 2020

Lebanese banks are resisting debt swap with Eurobond sales, JPMorgan

Bond investors have projected a sovereign default, though they differ on when it would happen and whether foreign investors would be exempt.

Lebanon is gradually succumbing to its worst economic crisis in decades since/Bloomberg

by Bloomberg

JPMorgan Chase & Co. analysts said that Lebanon’s plan to get local banks to swap into longer-maturity Eurobonds may be meeting resistance and signals growing financial stress in the country.

In a report, JPMorgan said that Lebanese banks started offloading their holdings of the country’s $1.2 billion bond after the central bank proposed an exchange into other instruments when it matures in March 2020, a sign they could be reluctant to go through with the deal.

Riad Salameh, Governor of Banque du Liban, said that the plan was ‘pre-emptive’ and dependent on the banks’ consent.

While Salameh did not say what the terms of the new bonds would be, JPMorgan noted that local banks may be asked to swap into existing government dollar notes maturing in November 2029 and July 2035. These securities are mostly owned by the central bank and have coupons of 11.5 per cent and 12 per cent, respectively.

The proposal is the latest effort by one of the world’s most indebted nations to buy more time in the face of looming repayments and dollar shortages. Among the reasons banks may not be on board is that the notes maturing in March 2020 trade at 87 cents, much higher than the price of Lebanon’s longer-dated debt, most of which trades at less than 50 cents.

Local banks may also prefer boosting their foreign-exchange liquidity rather than keeping their money within Eurobonds. Bank Audi said that it is trying to sell its Egyptian unit to raise capital.

Furthermore, JP Morgan said that the swap announcement casts doubts on the true availability of the country’s foreign exchange reserves, with outflows picking up at the end of 2019.

Lebanon is gradually succumbing to its worst economic crisis in decades since Prime Minister Saad Hariri resigned in October 2019 as moves to raise fees and taxes triggered massive anti-government protests.


RELATED STORIES: JPMorgan Banque du Liban Eurobonds Prime Minister Saad Hariri





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