PHOTO
Fitch Ratings-Hong Kong-March 18:
Fitch Ratings has downgraded Lebanon's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'RD' from 'C'.
The issue rating on the USD1.2bn Eurobond on which the government has defaulted was downgraded to 'D' and withdrawn for the following reason: Bankruptcy of the rated entity, debt restructuring or issue/tranche default.
A number of Long-Term Foreign Currency issue ratings were affirmed at 'C' and withdrawn for the following reason: no longer considered by Fitch to be relevant to the agency's coverage.
Key Rating Drivers
The downgrade of the IDR follows the end of the grace period for payment of the USD1.2 billion Eurobond that matured on 9 March. This means the sovereign is in 'Restricted Default' and the 9 March bond has been downgraded to 'D' and simultaneously withdrawn as it has defaulted and is now past its maturity date.
We have affirmed and withdrawn the ratings (at 'C') for the remaining Eurobonds, which have not yet defaulted, because Fitch no longer considers these ratings to be relevant to the agency's coverage given that the sovereign has announced its intention to restructure all of these Eurobonds. Fitch expects all of these remaining Eurobonds to default in due course, either as the sovereign misses debt service payments or as an agreement is reached on restructuring the bonds.
The prime minister, Hassan Diab, said on 7 March that with the country's foreign reserves dwindling, Lebanon would no longer prioritise foreign debt payments over funding basic imports and that the government will pursue negotiations with creditors in order to restructure the government's debt.
The government statement is not explicit on whether debt restructuring will involve local-currency debt (just over 100% of GDP), as well as the stock of Eurobonds (USD31 billion, approaching 60% of GDP). Nonetheless, the government's reference to making overall debt sustainable suggests that there will be some restructuring of local-currency debt and Fitch believes this is highly probable (along with broader restructuring of financial sector balance sheets). However, as yet, a timeline for this is unclear.
Therefore, for now, we maintain the Local-Currency IDR at 'CC'. This would move to 'C' as and when a timeline and plan emerges for restructuring. Until then the government is likely to remain current with its local currency debt obligations.
Sovereign Rating Model (SRM) and Qualitative Overlay (QO)
In accordance with its rating criteria, for ratings of 'CCC' and below, Fitch's sovereign rating committee has not utilised the SRM and QO to explain the ratings, which are guided instead by our ratings definitions.
Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.
RATING SENSITIVITIES
The main factor that could lead to positive rating action is:
-Once Lebanon reaches an agreement with bondholders on restructuring its long-term foreign currency debt and completes that restructuring process (for example, by issuing new bonds to replace the existing stock of bonds), Fitch will assign ratings based on a forward-looking analysis of the sovereign's willingness and capacity to honour its new foreign currency debt obligations.
The main factor that could lead to negative rating action is:
-The Long-Term Local-Currency IDR would be downgraded to 'C' if the government clearly announces plans to restructure its Lebanese pound-denominated debt. The rating would be downgraded to 'RD' in the event that the government defaults on the Lebanese pound debt before any restructuring announcement.
Key Assumptions
Fitch expects global indicators to move broadly in line with Fitch's Global Economic Outlook forecasts.
ESG Considerations
Lebanon has an ESG Relevance Score of 5 for Creditors' Rights as willingness to service and repay debt is highly relevant to the rating and a key rating driver with a high weight.
Lebanon has an ESG Relevance Score of 5 for Political Stability and Rights as World Bank Governance Indicators have the highest weight in Fitch's SRM and is therefore highly relevant to the rating and a key rating driver with a high weight.
Lebanon has an ESG Relevance Score of 5 for Rule of Law, Institutional Regulatory Quality and Control of Corruption as World Bank Governance Indicators (for which Lebanon scores well below peers) have the highest weight in Fitch's SRM and is therefore highly relevant to the rating and a key rating driver with a high weight.
Lebanon has an ESG Relevance Score of 4 for Human Rights and Political Freedoms as scores for the Voice and Accountability pillar of the World Bank Governance Indicators are relevant to the rating and a rating driver.
Lebanon; Long Term Issuer Default Rating; Downgrade; RD
----; Short Term Issuer Default Rating; Affirmed; C
----; Local Currency Long Term Issuer Default Rating; Affirmed; CC
----; Local Currency Short Term Issuer Default Rating; Affirmed; C
----; Country Ceiling; Affirmed; CCC
----senior unsecured; Long Term Rating; Affirmed; C
----senior unsecured; Long Term Rating; Downgrade; D
Contacts:
Primary Rating Analyst
Toby Iles,
Director
+852 2263 9832
Fitch (Hong Kong) Limited
19/F Man Yee Building 60-68 Des Voeux Road Central
Hong Kong
Secondary Rating Analyst
Jan Friederich,
Senior Director
+852 2263 9910
Committee Chairperson
Tony Stringer,
Managing Director
+44 20 3530 1219
Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@thefitchgroup.com; Wai Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@thefitchgroup.com.
Additional information is available on
Applicable Criteria
Country Ceilings Criteria (pub. 05 Jul 2019)
Sovereign Rating Criteria (pub. 26 May 2019)
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
Copyright 2020 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.
The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.
For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001
Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO's credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see
