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Lebanon bonds tumble after debt rescheduling report

January 13, 2019 at 9:41 am

Lebanon’s dollar-denominated sovereign bonds tumbled for a second day on Friday following a Bloomberg report quoting the finance minister saying a fiscal reform plan included a debt rescheduling, reported Reuters.

Finance Minister Ali Hassan Khalil said such a rescheduling would be undertaken in coordination with lenders and the central bank, Bloomberg said, citing a statement. The plan did not include any change to Lebanon’s fixed exchange rate, it added.

Lebanon’s dollar-denominated bonds suffered a second day of hefty falls with many issues trading at record lows.

The 2025 bond dropped 5.25 cents to a fresh record low of 73.50 cents in the dollar.

According to a summary of the comments to Bloomberg circulated by the finance ministry, Khalil did say the plan under consideration included a rescheduling, but he denied there was any intention to “restructure” Lebanon’s public debt, which is equal to around 150 percent of GDP.

But a Lebanese newspaper cited him on Thursday as saying the ministry was “preparing a financial correction plan including restructuring of public debt”, which triggered Thursday’s sell-off in dollar-denominated debt.

Read: Increasing public debt leading Lebanon to ‘bankruptcy’

Asked by Reuters on Friday whether a haircut – or writedown in value – was under consideration, Khalil said: “There is absolutely no intention of touching the value of Lebanese bonds or taking a percentage of them.”

“The proposals are an operation to organise and manage the debt and to move ahead with reform measures that reduce the burden of it,” he added.

Tim Ash at BlueBay Asset Management said the comments had caused concern in the markets. He said:

The damage is done …(this) just reflects the extent of the problems faced by Lebanon – there is simply no space for failing to adopt the right tone/language in all this

Khalil told Reuters on Thursday that Lebanon was studying ways to manage its public debt and its structure as part of plans for public finance reform.

The International Monetary Fund urged Lebanon in June to carry out “an immediate and substantial fiscal adjustment” to improve debt sustainability.

More than eight months since an election, political leaders have still not been able to agree a new government that could set about reforms to boost confidence.

Khalil, a top figure in the Amal Movement led by Parliament Speaker Nabih Berri, has recently become more vocal in his warnings about the economy. Last month, he said Lebanon was in an economic crisis that had started to turn into a financial one which he hoped would not become a monetary one.

Khalil has held the post of finance minister since 2014 and is expected to retain the position in the new government. A deal on forming the new cabinet to be led by Saad al-Hariri appeared close last month but the last obstacle was not resolved.

Read: Lebanon’s Berri says some parties do not want government formed