Figures released by the Ministry of Finance show that Lebanon’s gross public debt reached $85.32B during the first month of 2019, up from $80.39B in January 2019. Lebanon is in the midst of a dangerous multifaceted crisis: an economic, financial, and socio-political one. Officials are currently probing the possibility of a debt restructuring process for the Eurobond. “The majority of the Lebanese people, as well as Parliament, absolutely reject the … This is an illegal practice, according to the lawyer,” the banker explained. Lebanon has used refinancing, by issuing more eurobonds, in the past to service debt repayments. "Paying $ 4.8 billion will most definitely be a new consolation prize for banks and large depositors, but it will deprive the Lebanese economy and the Lebanese in general from purchasing the most basic materials that the country needs including food, medicine, fuel, and other raw materials for industry and agriculture," the statement explained. One of the biggest holders of Lebanon’s government debt are the country’s local banks. To help cut through the jargon, here is an explanation of each of these terms: Defaulting on a loan simply refers to a failure to repay the debt. The central bank (Banque du Liban, BdL) can always print enough liras to pay offer the former, but it is unable to print dollars to pay the latter. "The Lebanese state will seek to restructure its debts, in a manner consistent with the national interest" through negotiations with creditors, Diab said in a live address. For consumers, this may mean an inability to withdraw their money from the financial system or further borrow from institutions with nothing left to lend. (File photo: Dalati Nohra/Handout/Reuters), Last Update: Wednesday, 20 May 2020 KSA 10:05 - GMT 07:05, Kuwait’s emir appoints Sabah al-Khalid as new PM, American charged with using $2 million of coronavirus aid for luxury cars, homes, Coronavirus: Indonesia deports Russian social media star after party, Coronavirus: Multiple daily COVID-19 deaths at Lebanon hospitals becomes new normal, Explainer: Everything you need to know about Russia’s Sputnik V COVID-19 vaccine, Swiss crematorium swamped by coronavirus deaths, tries to enable peaceful goodbyes. Defaulting on debt in the short term will reduce the amount that the country will need to pay back – more on this later – but this can have disastrous consequences in the long term. Lebanon is the third most indebted country in the world, with a debt-to-GDP ratio of 170%, according to Prime Minister Hassan Diab. Lebanon can afford to wait to issue between $2.5 billion to $3 billion in Eurobonds until the market conditions are ripe but the government will definitely not miss the $650 million Eurobonds which mature early next week, a banking source said. Before you rush to short the when-issued bond, let me rain on your parade: Lebanese Eurobonds … Another downgrade would further impact Lebanon’s ability to borrow money in the future as lenders would demand higher interest rates for loans to an organization that recently defaulted. This is the first time Lebanon has defaulted in the payment of its debt. The Lebanese currency, the lira, which has for months traded on the black market significantly lower than compared to its official peg, will lose further value as money leaves the country. “The government has some options concerning the Eurobonds for the timbering. Diab said that Lebanon will not repay the $1.2 billion Eurobond that was due today, and will seek to restructure its debt as the country's dollar reser Typically it is a bond that is issued by a non-European company for … Lebanon’s banking sector on the precipice. “The government has some options concerning the Eurobonds for the timbering. Lebanon’s prime minister Hassan Diab announced on Saturday that the country would default on its Eurobond debt due to the major financial crisis. 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"The Lebanese state will seek to restructure its debts, in a manner consistent with the national interest" through negotiations with creditors, Diab said in a live address. Introduction. Ghobril explained that defaulting on payment of Eurobonds must happen within a package by the International Monetary Fund (IMF). Eurobonds are usually "bearer bonds," meaning that there is no transfer agent that keeps a list of bondholders and arranges the interest and principal payments. "The government has decided to discontinue payments on all of its outstanding US$-denominated Eurobonds," said an English-language statement posted on the finance ministry's website. This is the first time Lebanon has defaulted in the payment of its debt. The section of the bond documents that has “waiver” in the title does not even explicitly discuss the procedures for granting waivers. Lebanon — which ranked 137th on the list of least corrupt countries out of 180 countries, according to the 2019 Corruption Perceptions Index reported by Transparency International — is also slated to repay $1.2 billion in Eurobonds maturing March 9. For one, a progressive haircut is required. Eurobonds can be purchased in the same way as most other bonds through global stock exchanges. On Tuesday, credit ratings firm Fitch Ratings said that, “We believe that some form of government debt restructuring is probable.”. Furthermore, Goldman Sachs classified Lebanon's Eurobonds that have a maturity of seven to 12 years as undervalued. The term haircut has been used in reference to the Lebanese financial crisis to refer to a forced decrease in deposits. The difference between the actual spread of 523 bps on Lebanon’s Eurobonds and the Goldman Sachs’ model-implied spread of 284 bps shows that the undervaluation is at 239 bps,” the report said. Economy Minister Raoul Nehme, a former banker, explained on MTV that the discussions with creditors, and therefore banks, were not expected until after the plan was finalized in the context of negotiations with the IMF. “Although Lebanon technically retains foreign-exchange reserves sufficient to service its sovereign debt repayment obligations in 2020-2021, the costs of meeting its obligations would be so high that this outcome appears politically unrealistic,” the firm commented. “We do not need a banking sector that is four times the size of our economy,” he said. The minister explained that applying a haircut on the Eurobonds depends on the negotiations with the bond holders. A U.S.-dollar denominated bond, or a bond of another currency, that is issued and traded outside of the country whose currency is used. In addition to $31 billion of those, the Middle Eastern nation’s central bank has $52.5 billion of obligations in the form of foreign-currency deposits and certificates of deposit. Lebanon can afford to wait to issue between $2.5 billion to $3 billion in Eurobonds until the market conditions are ripe but the government will definitely not miss the $650 million Eurobonds which mature early next week, a banking source said. (Reuters), Last Update: Wednesday, 20 May 2020 KSA 10:02 - GMT 07:02, Kuwait’s emir appoints Sabah al-Khalid as new PM, American charged with using $2 million of coronavirus aid for luxury cars, homes, Coronavirus: Indonesia deports Russian social media star after party, Coronavirus: Multiple daily COVID-19 deaths at Lebanon hospitals becomes new normal, Explainer: Everything you need to know about Russia’s Sputnik V COVID-19 vaccine, Swiss crematorium swamped by coronavirus deaths, tries to enable peaceful goodbyes. Currently, the Luxembourg Stock Exchange and the London Stock Exchange are the two biggest hubs for investing in eurobonds, but there are many around the world. The country’s credit rating will fall drastically and make it much harder for Lebanon to attract foreign investment and much more expensive to take out loans. “Moody’s recent report admitted that Lebanon has never defaulted on the payment of its debts. Eurobonds are frequently grouped together by the currency in which they are denominated, such as eurodollar or Euro-yen bonds. In this process, the $1.2 billion Eurobond notes would be swapped for new bond notes that would mature later with a higher interest rate. Lebanon announced its decision on Saturday to default on payment of the $1.2 billion Eurobond maturing on March 9, an unprecedented move for a country that has never before defaulted on debt. In fact, the language is jumbled. Some estimates say a 70 percent haircut is needed, Reuters reported. The state issues the Eurobonds and not BDL,” the source explained. Lebanon's Finance Ministry has designated Barclays, Byblos Bank, Societe Generale de Banque au Liban and JPMorgan to co-manage the issuance of $1.5 billion in eurobonds to finance the public debt. We are talking theory that in case Lebanon defaulted then the U.S. would seize. "The difference between the actual spread of 485 bps on Lebanon's Eurobonds and the Goldman Sachs' model-implied spread of 376 bps shows that the undervaluation is at 109 bps," the report said. Economist Ghazi Wazni said there was no reason to make a big issue out of Lebanon’s gold reserves. So far, however, authorities have strongly denied rumors that a depositor haircut is on the table. Why doesn’t the world sympathize with Tehran and Damascus? in Lebanon to be severe; economies which experience debt, currency, and banking crises simultaneously contract by about 8% before they recover. Some government officials have acknowledged the situation needs to change. Understanding the Eurobond The "euro" in eurobond is meant to imply external. in Lebanon to be severe; economies which experience debt, currency, and banking crises simultaneously contract by about 8% before they recover. These problems continue to stem from the years-long scheme that the local banking sector and authorities engaged in to maintain the financial system that led to the country’s economic crisis. Lebanon has a lot more than just maturing Eurobonds to worry about. We are talking theory that in case Lebanon defaulted then the U.S. would seize. These eurobonds should not be confused with Eurobonds with a … A default on debt will have far-reaching and long-lasting effects on Lebanon, and with no decision in sight on how authorities will handle the debt liability, many have asked the question as to what will happen next. “Lebanon’s extra long-term Eurobonds, along with those of Argentina (48 bps), were the only undervalued bonds among 10 B-rated sovereigns,” the report said. Lebanon has used refinancing, by issuing more eurobonds, in the past to service debt repayments. Lebanon’s currency is artificially strong, but the peg is seen as a hallmark of economic stability and a key reason for Lebanon’s rich diaspora to keep sending money back home. 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Also called external bond; "external bonds which, strictly, are neither eurobonds nor foreign bonds would also include: foreign currency denominated domestic bonds…" It can be categorised according to the currency in which it is issued. During Cyprus’ financial crisis in the early 2010s, authorities used this method, and depositors who had savings of over 100,000 euros lost over half of their deposits in order to free up liquidity and finance a bailout. “The downgrade and Negative Outlook reflect the very high risk that the Lebanese government will undertake some form of debt restructuring in the near term given the loss of access to capital markets, the ongoing crisis in the domestic banking sector, a weakening international reserve position, and heightened political risk,” Capital Intelligence Ratings wrote in a note on Friday in which it downgraded the country. Lebanon has a lot more than just maturing Eurobonds to worry about. In Lebanon too, the lira-denominated debt (approximately sixty-three percent of public debt) is more manageable than the public debt denominated in foreign currency (the eurobonds). The exact mechanics of how this would work in Lebanon’s case have already been debated by experts. Excessive fiscal and external imbalances, financed through debt for decades under a fixed exchange rate regime, weakened the balance sheets of the sovereign, banks and the central bank, and led to a sudden stop of capital that precipitated a debt, banking and currency crisis. Crisis-hit Lebanon’s government has to decide whether it should restructure or pay its $2.5 billion Eurobonds, including a $1.2 billion Eurobond maturing in March, $600 million maturing in April, and $700 million in June. In addition to $31 billion of those, the Middle Eastern nation’s central bank has $52.5 billion of obligations in the form of foreign-currency deposits and certificates of deposit. Not surprisingly, the price of Lebanese eurobonds have recently plummeted to historic lows, with rating agencies downgrading Lebanon's sovereign and bank debt to junk territory, while credit default swap rates – the cost of insuring against default – have shot up to 2,500, second only to Argentina.. London is one of the centers of the eurobond market, … An example of refinancing was used above as a form of restructuring– when a loan with a high interest rate is paid off with a lower interest rate loan, leaving the debtor with lower payments. 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It had been hinted at by authorities that a swap might be the restructuring solution. For one, a progressive haircut is required. But the banks, holding that the state is solely responsible for the crisis and should deal with the consequences, took the lead. ... “Foreign reserves excluding gold is around $38 billion including Eurobonds,” he revealed. Treasury bills also make up a significant portion of the overall assets of the banks, meaning that in the event of a default, the value of these assets would decrease. The central bank (Banque du Liban, BdL) can always print enough liras to pay offer the former, but it is unable to print dollars to pay the latter. Lebanese Eurobonds maturing in late 2024 yield close to 17%, yet the Lebanese government has just mandated a syndicate of four local banks to place $2 bb 5-year Eurobonds at a 12.50% yield…and the issue will be a success. Explainer: With no self-pardon in hand, could Trump face legal issues as a citizen? For example, if an entity has multiple loans with different interest rates, it could take one large loan with a lower interest rate and repay the older loans in order to bring down overall repayments. Lebanon is passing through an unprecedented economic and financial crisis unprecedented since its 1975-90 civil war. Parliament Speaker Nabih Berri rejected the payment of maturities on Lebanon’s foreign-currency debt, MP Ali Bazzi said Wednesday. The state issues the Eurobonds and not BDL,” the source explained. Lebanon said Saturday it would default on its Eurobond debt for the first time and seek out restructuring agreements due to a spiralling financial crisis that has hit foreign currency reserves. He explained: “Last March, the government decided to suspend the payment of international debt bonds (Eurobonds), which required us to prepare a comprehensive financial plan that would serve as a platform for negotiating with creditors, and to submit it to the IMF, which responded to the government’s request for technical assistance at the time.” Diab explained that debt restructuring is part of a wider economic rescue plan, that seeks to cut state spending and save more than $350 million annually, including by downsizing the banking sector. However, the virus did add some interesting dynamics. 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