Lebanon debt costs at new low as Syria effect muted

Beirut : Lebanon's borrowing costs dropped close to a record as investors dismiss the effect of Syria's crisis on banks in the most indebted Arab nation.

The yield on the 6.6 per cent bonds due November 2026 fell 31 basis points this year to 6.25 per cent yesterday, three basis points above the March all-time low, data compiled by Bloomberg show. Average sovereign bond rates in the Middle East declined just nine basis points to 5.72 per cent in the same period, the JPMorgan EMBIG Mideast Sovereign Yield index shows.

Lebanese banks have set aside provisions and reduced their exposure to Syrian businesses by 40 per cent in the past 15 months, Central Bank Governor Riad Salameh said on May 11. While the measures may lead to slower earnings growth, they insulate the lenders from a possible spillover of the crisis, he said. Economic growth quickened to as much as 3.5 per cent in the first quarter after no growth in the year-earlier period as airport traffic rose and tourism in Beirut recovered, he said.

"Lebanon has often proved resilience during bouts of regional upheaval and Lebanese sovereign debt can be seen as a regional safe haven supported by a loyal Arab investor base," Michael Hansen, who helps manage about $1 billion (Dh3.67 billion) in emerging-market debt as a senior strategist at Global Evolution in Kolding, Denmark, said by email yesterday.

"All in, we're comfortable with the situation in Lebanon and hold a small position in local Lebanese debt."

Credit default swaps on Lebanon's debt sank 27 basis points in 2012 to 445 on May 1, the lowest since December, according to data provider CMA, which is owned by CME Group Inc and compiles prices quoted by dealers in the privately negotiated market.