Dubai (Bloomberg): 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 ability to repay the principal.
Many of the nation’s Eurobonds have slumped to record lows as investors’ relief over the formation of a new government last week proved to be short-lived. Investor confidence in Lebanon’s ability to meet liabilities has crumbled as it grapples with its worst economic and political crisis in decades, following months of protests.
But investors aren’t hopeful. The cost of insuring Lebanon’s debt against default has soared to record highs. The government’s five-year credit-default swaps hovers around 3,700 basis points, among the world’s highest.
Lebanon’s Eurobonds are the world’s worst performers in emerging markets this month, losing investors more than 14 per cent according to Bloomberg Barclays indexes.
International reserves can only finance external needs until March 2021 before being depleted, and attempts to secure financial assistance from Gulf allies have so far come up empty.
Countdown to a meltdown
“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 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.”
The new government, led by Prime Minister Hassan Diab, is meeting this week and top of its agenda will be whether to repay the March Eurobond. One of the world’s most indebted countries, Lebanon has nevertheless 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.