Le­banon is­sues $3B in eu­robonds

Big­gest sin­gle sov­er­eign bond is­suance in for­eign-de­nom­i­nated cur­rency by the state

The Daily Star (Lebanon) - - BUSINESS -

BEIRUT: Le­banon suc­cess­fully is­sued $3 bil­lion in eu­robonds to fi­nance the pub­lic debt and meet the needs of the state, a state­ment by the Fi­nance Min­istry said Tues­day.

This is the largest sin­gle sov­er­eign bond is­suance in for­eign-de­nom­i­nated cur­rency by the Le­banese state.

“Fi­nance Min­is­ter Ali Hasan Khalil an­nounced that the Fi­nance Min­istry, in line with ex­ist­ing laws, is­sued on March 23, 2017, $3 bil­lion in eu­robonds to fi­nance the ma­tur­ing debt bonds in for­eign cur­rency for 2017,” the min­istry state­ment said.

The min­istry said the new is­sue was six times over­sub­scribed to reach $17.8 bil­lion, $1.250 bil­lion of which came from for­eign banks and fi­nan­cial in­sti­tu­tions.

It added that for­eign banks and fi­nan­cial in­sti­tu­tions snapped up 20 per­cent of the to­tal $3 bil­lion eu­robonds, or an equiv­a­lent of $600 mil­lion. “The re­turn on these bonds are rea­son­able and in line with the pre­vail­ing in­ter­est rates of­fered in the sec­ondary mar­kets,” the state­ment said.

The $3 bil­lion in eu­robonds were dis­trib­uted in three tranches: 10 years, 15 years and 20 years.

The 10-year tranche car­ries an in­ter­est rate of 6.85 per­cent, 15-year car­ries an in­ter­est rate of 7 per­cent, and the 20-year car­ries an in­ter­est rate of 7.25 per­cent.

A banker told The Daily Star that out of $3 bil­lion in eu­robonds, $1.5 bil­lion re­place the ma­tur­ing bonds that ex­pire March 23, and the rest is fresh money.

“Le­banese and for­eign in­vestors still show great con­fi­dence in Le­banon and the eu­robond is­sue is great proof of that,” the banker said.

Bankers said that they would con­tinue to sub­scribe to the sov­er­eign bonds even if the Le­banese gov­ern­ment in­sists on in­creas­ing taxes on prof­its from 15 to 17 per­cent and raises the tax on in­ter­est on de­posits from 5 to 7 per­cent.

Le­banese banks hold a big por­tion of the gov­ern­ment T-bills and eu­robonds and this in­creases their ex­po­sure to the pub­lic debt, which now stands at $74 bil­lion.

In­ter­na­tional rat­ings agen­cies have con­stantly warned Le­banese banks not to in­crease their ex­po­sure to the pub­lic debt.

‘Le­banese and for­eign in­vestors still show great con­fi­dence in Le­banon’

But it is highly un­likely the gov­ern­ment will stop bor­row­ing from Le­banese banks and for­eign cred­i­tors in the fore­see­able fu­ture as long as the fis­cal deficit re­mains high.

The cost of debt ser­vic­ing, which is around $4 to $5 bil­lion a year, is the big­gest spend­ing item in the gov­ern­ment bud­get, fol­lowed by civil ser­vants’ salaries. –

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