The Daily Star (Lebanon)

Lebanon issues $3B in eurobonds

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

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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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