Lebanese currency bonds are now the cheapest in the world

From Charybdis to Scylla. For the first time in the country’s history, it fell below 10 cents to the dollar, the value of bonds in the currency issued by the Lebanese state, the Eurobonds (LEBAN Eurobonds), became less than the value of the bonds issued. from Venezuela (VENZ bonds), which until last week were the cheapest in the world, according to figures quoted by EMFI (Emerging Finance). According to data reported by EMFI, L’Orient-Le Jour was able to confirm via other sources, a long-term Lebanese Eurobond was trading at 9.2 cents at the beginning of the week, while Venezuela was at 9.5 cents.

« Le prix des titres libanais est à son niveau le plus bas, ces derniers sont les moins chers des dettes souveraines actuellement », souligne l’ancien ministre du Travail et spécialiste du marché des titres de dettei’, Camille Abousle’s contact paréman’ -today. Lebanon and Venezuela default on their respective bonds, and Lebanon no longer issues new securities, as government bonds are traded exclusively on the secondary market, and therefore only among their holders. Lebanon, which is going through a serious economic, financial and social crisis, in March 2020 defaulted on its debts without being restructured since then. Venezuela, whose regime is targeted by US sanctions, has seen defaults at least since November 2017. According to Audi Bank Research Director Marwan Barakat, the recent drop in the price of Lebanon-issued Eurobonds to less than 10 cents is linked To the high degree of uncertainty that prevails regarding the ability of the authorities to implement the measures demanded by the International Monetary Fund prior to the possible release of financial assistance.

No fixes

The first significant drop in the prices of Lebanese Eurobonds occurred in February 2020, when the government of Hassan Diab officially launched two calls for proposals, one of them aimed at selecting an international law firm, which would be Cleary Gottlieb Steen and Hamilton LLP, and the other in favor of an international financial advisory firm – Lazard. During the day, Eurobond prices fell by 17 cents on the dollar, causing prices to fluctuate between 55 and 57 cents on the dollar, the worst performance of the country at the time, which is not yet in default. But this announcement indicates that the company was considering this option.

Two weeks later, the state announced that it would default. A year later, these securities were only worth 15 to 17 cents, a level around which they have gravitated ever since. On May 13, two days before the legislative elections, prices were at their highest levels since the beginning of the year, between 12 and 13 cents. They haven’t stopped falling since then.

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It should be noted, however, that Lebanese stocks are “not very liquid,” so they cannot easily find a buyer who will exchange these debt securities for cold hard currency. At the request of Lebanon in the wake of the 2020 stumble, the International Monetary Fund announced on April 7 that a preliminary agreement had been reached to allow Lebanon to obtain $3 billion over 4 years to fund a way out of the crisis. Provided, however, that the loan payments authorities launch a series of reforms – implementing a debt restructuring strategy, auditing the country’s 14 largest banks, reforming bank secrecy, and completing the BDL audit, among others – before the final approval of the program Assistance from the fund’s board of directors.

However, the majority of these projects do not seem to show much progress, as while Parliament was renewed on May 15, the government is now in charge of day-to-day business and everything indicates that the formation of a new full-fledged executive could be delayed due to the lack of a clear majority in the fragmented Parliament . For his part, Nassib Ghobril, Director of Research Department at Byblos Bank, said, “It is not surprising that the prices of Lebanese Eurobonds have fallen, given the absence of reforms and tangible measures taken by the authorities.” He points out that Najib Mikati’s government addressed the creditors, via video, for the first time only a few days before the elections, and that Deputy Prime Minister Saad Al-Shami, through this virtual meeting, only updated the situation without revealing details of a possible restructuring.

Venezuela’s dynamics are different, follows Marwan Barakat, who asserts that the country is benefiting from the fact that the United States recently eased its sanctions against Nicolás Maduro’s regime, ostensibly to facilitate discussions between the latter and the opposition led by Juan Guaido. A paradigm shift on the part of Washington began to appear in parallel with the Russian-Ukrainian conflict, and many observers indicated that the goal would be to increase the supply of oil in the market to reduce prices there, after the barrel exceeded the $100 mark after the outbreak of the conflict in Ukraine. “In terms of numbers, Venezuelan securities rose from 5 cents to the dollar to nearly 10 cents between February and today,” said Marwan Barakat. For his part, the former minister called for taking advantage of low Eurobond prices to make a “public bid offer”. According to him, the issue price of these securities is generally 100%, and therefore the state can buy back part of them at a price of 12%. By disbursing $2 billion, Lebanon can buy back more than $16 billion in securities, allowing the country or the central bank to withdraw most debt securities owned by non-residents from circulation. “This strategy will also improve Lebanon’s position during negotiations with creditors, as at least 75% of creditors must vote series by series (29 series, editor’s note) to approve the restructuring,” he explains.

Kamil Abu Suleiman specifies that “the debt price will definitely rise once an agreement is concluded with the International Monetary Fund. The best time for debt recovery is when the issuer’s outlook is negative, which is certainly now.” The debt specialist also adds: “I understand that currencies are scarce and should be used wisely or not at all, but buying back Eurobonds would be a much better use than temporarily and artificially bailing out the pound for policy. He is referring to the $11.8 billion in reserves he has used The Banque du Liban, according to the figures presented by Governor Riad Salameh to the press last week, where a large part of it was used on the one hand to finance support for basic necessities and another part through the exchange exchange platform from which the Banque du Liban pumps currencies.

From Charybdis to Scylla. For the first time in the country’s history, it fell below 10 cents to the dollar, the value of bonds in the currency issued by the Lebanese state, the Eurobonds (LEBAN Eurobonds), became less than the value of the bonds issued. by Venezuela (VENZ bond), which until last week was the cheapest in the world, according to …

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