Lebanese bonds sink to record lows amid concern over repayment

As investors count down to Lebanon’s next bond maturity on March 9, a fresh meltdown in the debt market reflects their concern over the government’s solvency.

Many of the crisis-ridden nation’s Eurobonds have slumped to record lows as relief over the formation of a new government last week proved to be short-lived:

• The price of the $1.2bn security due in March has declined 5 cents this week to 76 cents on the dollar, a record low; that equates to a yield to maturity of almost 300 per cent
• A $2.1bn bond maturing in April 2021 slid below 50 cents for the first time this week and traded at 45 cents on Wednesday
• Notes due May 2029 have fallen 8 cents in the past five trading days to 34 cents

Lebanon is grappling with its worst economic and political crisis in decades, following months of protests. International reserves can only finance external needs until March 2021 before being depleted, according to Bloomberg Economics, and attempts to secure financial assistance from Gulf allies have so far come up empty.

“Lebanon is running out of time to find a solution to service its debt and some type of debt restructuring appears inevitable within the next three to six months,” said Anders Faergemann, a London-based money manager at Pinebridge Investments, which sold all of its Lebanese bond holdings last year.

“We are obviously very conscious of the March 9 bond maturity.”

Top of the agenda for the new government, led by Prime Minister Hassan Diab, will be whether to repay the March Eurobond. One of the world’s most indebted countries, Lebanon nevertheless has an unblemished record of bond repayment through war and political strife.

Finance Minister Ghazi Wazni met with central bank Governor Riad Salameh on Tuesday to discuss monetary and banking issues, according to a tweet from Wazni.

Earlier this month the central bank suggested getting local holders of the March notes to swap into longer-dated bonds as a way of preserving the country’s foreign reserves. But the Finance Ministry asked it to hold off after ratings agencies warned they would view it as a distressed exchange and downgrade Lebanon.

استقبلت اليوم حاكم مصرف لبنان رياض سلامة وتداولت معه بالمسائل المالية والنقدية والمصرفية pic.twitter.com/UIxqXnHwvT

— Dr.Ghazi Wazni (@GhaziWazni) January 28, 2020

The cost of insuring Lebanon’s debt against default has soared to record highs. The government’s five-year credit-default swaps hover around 3,900 basis points, among the world’s highest.

Lebanon’s Eurobonds are the worst performers in emerging markets this year, losing more than 16 per cent, according to Bloomberg Barclays indexes.