Lebanon repays Eurobond worth $1.5b

Lebanon repaid a $1.5 billion Eurobond on yesterday, an official with knowledge of the matter said, buying the country time as speculation swirls over its ability to avoid a default during a political and economic crisis.

The Finance Ministry issued payment instructions to the central bank, also known as Banque du Liban, the official said on condition of anonymity. The next bond payment is scheduled for March, when a $1.2 billion Eurobond comes due.

Lebanon has never defaulted on its obligations despite struggling under one of the world’s biggest debt burdens, and the central bank had repeatedly said it would cover the $1.5 billion bond. But weeks of nationwide protests that ousted the government saw credit risk surge and investor confidence slump.

Foreign bondholders are estimated to hold $500 million of the repaid Eurobond, while the central bank has $600 million and the rest is most likely held by local banks, according to a Bank of America Merrill Lynch research note this week.

Day of reckoning

Lebanon is nearing its day of reckoning after years of overspending, borrowing and political paralysis, coupled with the crisis in neighbouring Syria that sent more than 1.5 million refugees into the tiny country.

With a current account deficit of over 25 per cent of its gross domestic product, weak growth and debt that’s reached 155 per cent of the economy, the central bank tried to maintain financial stability throughout the years and carried out what it called financial engineering. The operation was meant to shore up reserves and raise the capital of local banks. The protests were sparked by a government levy on phone calls such as those using the free WhatsApp service.