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Lebanon secures record low rate for Eurobonds issue
03 December 2009
BEIRUT: The Lebanese government managed to secure the lowest loan rate in its history with the issuance of two tranches of Eurobonds: one for five year $250 million with a coupon of 5.875 percent and a second 15 year $250 million with a coupon of 7 percent. Saad Andary, the vice governor of the central bank, told The Daily Star Wednesday that the growing confidence in both the Lebanese economy in general and banking sector in particular has allowed the Finance Ministry to negotiate such a low rate of lending.
In the past, the average yields on Lebanese sovereign Euro-bonds ranged between 7.5 percent to more than nine percent.
Analysts stress that securing low interest rates on bonds will allow the government of Premier Saad Hariri to reduce the cost of debt servicing and with the budget deficit in spending.
“This low rate in borrowing reflects the low credit default swap (CFD) of Lebanon. This means the possibility of default payment in Lebanon is getting lower and lower,” Andary said.
He added that the issue was four times oversubscribed by both local and foreign investors.
The co-managers of the new issue were Bank of Beirut, Societe General and Citibank.
“Even most of the lead managers of the new issue were Lebanese. This shows that the Lebanese banks have the know-how and the power to underwrite these issues,” Andary said.
He added that in the past the government sought rates of 9-11 percent for the Eurobonds but with the high performance of the Lebanese economy and the flow of more than $12 billion of customer deposits that picture totally changed.
Lebanon, which survived the fallout of the severe global recession, has recorded a balance of trade surplus of $6 billion up to October 2009 while customer deposits rose to $98 billion.
“The investors who subscribed to these issues can sell at a premium and make a handsome profit,” Andary said.
It is worth noting that Fitch Ratings has assigned the Republic of Lebanon’s two new $250 million bonds respective ratings of “B-.” The ratings are in line with Lebanon’s sovereign Long-term foreign currency Issuer Default Rating (IDR) of “B-” with a Stable Outlook
The two bonds, which will each be issued for $250 million, are due in 2015 and 2024 and have coupons of 5.875 percent and 7 percent respectively.
Fitch said Lebanon’s new government is expected to approve its ministerial policy statement and to receive a vote of confidence from Parliament soon after.
The agency said the restoration of political stability, culminating in elections in June, has enabled Lebanon’s economy to continue a strong recovery.
Fitch forecasts that Lebanon’s GDP will grow by around 7 percent in 2009 with inflation falling to low single digits and the debt burden continuing to ease slightly.
It said that the country’s banking system has continued to attract substantial resident and non-resident private sector deposits which have helped fund the government’s large debt burden and the current account deficit. Foreign currency re-serves rose throughout 2009 to reach over USD27bn at end No-vember, marking a record high.
“However, the new government faces substantial political challenges and a pressing need to reduce its budget deficit and debt burden from around 10 percent and 150 percent of GDP respectively,” Fitch said.
Details of the new government’s fiscal consolidation plan, to be included in the 2010 budget, are expected to be presented to Parliament by end January.
This moral boost to the new government also coincided with media reports that the prices of one ounce of gold has jumped to $1,217, a record figure, and this has reflected positively on the value of Leba-non’s gold reserves which is the biggest in the Middle East.
Now the value of Lebanon’s gold reserves alone are worth over $11 billion, nearly a quarter of the country’s public debt.
Central bank Governor Riad Salameh said the bank cannot take action on the gold reserves because the Parliament is the only one authorized to give a final decision on the gold.
© Copyright The Daily Star 2009.
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