In Lebanon’s case, as the country faces an unprecedented economic and political crisis, if it fails to repay its creditors, the bondholders, on March 9 it will default. Economy Minister Raoul Nehme, a former banker, explained on MTV that the discussions with creditors, and therefore banks, were not expected until after the plan was finalized in the context of negotiations with the IMF. 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"The Lebanese state will seek to restructure its debts, in a manner consistent with the national interest" through negotiations with creditors, Diab said in a live address. Lebanon's Finance Ministry has designated Barclays, Byblos Bank, Societe Generale de Banque au Liban and JPMorgan to co-manage the issuance of $1.5 billion in eurobonds to finance the public debt. The state issues the Eurobonds and not BDL,” the source explained. This is an illegal practice, according to the lawyer,” the banker explained. Lebanon said Saturday it would default on its Eurobond debt for the first time and seek out restructuring agreements due to a spiralling financial crisis that has hit foreign currency reserves. Eurobonds are international bonds denominated in a currency other than that of the issuer. Crisis-hit Lebanon’s government has to decide whether it should restructure or pay its $2.5 billion Eurobonds, including a $1.2 billion Eurobond maturing in March, $600 million maturing in April, and $700 million in June. Lebanese banks hold around $14.5 billion of the sovereign Eurobonds, the Central Bank holds $5.5 billion while the rest are held by foreign investment funds. Economist Ghazi Wazni said there was no reason to make a big issue out of Lebanon’s gold reserves. Lebanon is passing through an unprecedented economic and financial crisis unprecedented since its 1975-90 civil war. One of the biggest holders of Lebanon’s government debt are the country’s local banks. In this process, the $1.2 billion Eurobond notes would be swapped for new bond notes that would mature later with a higher interest rate. Lebanon can afford to wait to issue between $2.5 billion to $3 billion in Eurobonds until the market conditions are ripe but the government will definitely not miss the $650 million Eurobonds which mature early next week, a banking source said. "The government has decided to discontinue payments on all of its outstanding US$-denominated Eurobonds," said an English-language statement posted on the finance ministry's website. 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Lebanon announced its decision on Saturday to default on payment of the $1.2 billion Eurobond maturing on March 9, an unprecedented move for a country that has never before defaulted on debt. Lebanon’s banking sector on the precipice. "Paying $ 4.8 billion will most definitely be a new consolation prize for banks and large depositors, but it will deprive the Lebanese economy and the Lebanese in general from purchasing the most basic materials that the country needs including food, medicine, fuel, and other raw materials for industry and agriculture," the statement explained. As it becomes clearer that authorities might default on the Eurobond, the banks have sought to offload the bonds to opportunistic foreign investors. Lebanon's finance ministry on Monday said it will "discontinue" payments on all dollar-denominated Eurobonds due in the next 15 years to safeguard dwindling foreign currency reserves. Lebanon may have saved itself the debacle of going into a kind of default-lite this week, but it’s hard to see how it’s going to wiggle out of a real default. During Cyprus’ financial crisis in the early 2010s, authorities used this method, and depositors who had savings of over 100,000 euros lost over half of their deposits in order to free up liquidity and finance a bailout. We are talking theory that in case Lebanon defaulted then the U.S. would seize. “The government has some options concerning the Eurobonds for the timbering. On an annual basis, gross public debt widened by 6.13% on the back of the rise in both, … Some government officials have acknowledged the situation needs to change. Before you rush to short the when-issued bond, let me rain on your parade: Lebanese Eurobonds … “Moody’s recent report admitted that Lebanon has never defaulted on the payment of its debts. Lebanese Eurobonds maturing in late 2024 yield close to 17%, yet the Lebanese government has just mandated a syndicate of four local banks to place $2 bb 5-year Eurobonds at a 12.50% yield…and the issue will be a success. Excessive fiscal and external imbalances, financed through debt for decades under a fixed exchange rate regime, weakened the balance sheets of the sovereign, banks and the central bank, and led to a sudden stop of capital that precipitated a debt, banking and currency crisis. “Lebanon’s extra long-term Eurobonds, along with those of Argentina (48 bps), were the only undervalued bonds among 10 B-rated sovereigns,” the report said. In this event the total amount that Lebanon owes would only increase - a painful proposition for a country that is one of the world’s most indebted, with its loans totaling around 170 percent of GDP. (Reuters), Last Update: Wednesday, 20 May 2020 KSA 10:02 - GMT 07:02, Kuwait’s emir appoints Sabah al-Khalid as new PM, American charged with using $2 million of coronavirus aid for luxury cars, homes, Coronavirus: Indonesia deports Russian social media star after party, Coronavirus: Multiple daily COVID-19 deaths at Lebanon hospitals becomes new normal, Explainer: Everything you need to know about Russia’s Sputnik V COVID-19 vaccine, Swiss crematorium swamped by coronavirus deaths, tries to enable peaceful goodbyes. Excessive fiscal and external imbalances, financed through debt for decades under a fixed exchange rate regime, weakened the balance sheets of the sovereign, banks and the central bank, and led to a sudden stop of capital that precipitated a debt, banking and currency crisis. We are talking theory that in case Lebanon defaulted then the U.S. would seize. The central bank (Banque du Liban, BdL) can always print enough liras to pay offer the former, but it is unable to print dollars to pay the latter. The Lebanese Eurobonds witnessed a weak demand on Monday as the BLOM Bond Index (BBI) dropped by 0.07% to 103.55 points. Lebanon is the third most indebted country in the world, with a debt-to-GDP ratio of 170%, according to Prime Minister Hassan Diab. In addition to $31 billion of those, the Middle Eastern nation’s central bank has $52.5 billion of obligations in the form of foreign-currency deposits and certificates of deposit. A eurobond is an international bond that is denominated in a currency not native to the country where it is issued. Treasury bills also make up a significant portion of the overall assets of the banks, meaning that in the event of a default, the value of these assets would decrease. Lebanon has used refinancing, by issuing more eurobonds, in the past to service debt repayments. Jan 20, 2021 Lebanon News Lebanon's virus death toll over 2,000 after another daily record Jan 21, 2021 Lebanon News Cabinet breakthrough hinges on ceasing obstruction: Future Jan 21, 2021 Lebanon News Lebanon needs to be wary in COVID-19 vaccine selection A default on debt will have far-reaching and long-lasting effects on Lebanon, and with no decision in sight on how authorities will handle the debt liability, many have asked the question as to what will happen next. The Lebanese currency, the lira, which has for months traded on the black market significantly lower than compared to its official peg, will lose further value as money leaves the country. But the banks, holding that the state is solely responsible for the crisis and should deal with the consequences, took the lead. 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Despite their name, eurobonds aren’t necessarily denominated in euros and can take many different forms. “The government has some options concerning the Eurobonds for the timbering. This is the first time Lebanon has defaulted in the payment of its debt. "The government has decided to discontinue payments on all of its outstanding US$-denominated Eurobonds," said an English-language statement posted on the finance ministry's website. It had been hinted at by authorities that a swap might be the restructuring solution. One potential might be for authorities to swap the $1.2 billion eurobond into new bond notes that would mature later with a higher interest rate – a move at which authorities have previously hinted. In addition to $31 billion of those, the Middle Eastern nation’s central bank has $52.5 billion of obligations in the form of foreign-currency deposits and certificates of deposit. Local lenders sold around $500 million of the notes from the March Eurobond to emerging markets specialist Ashmore, a move now under judicial review. The section of the bond documents that has “waiver” in the title does not even explicitly discuss the procedures for granting waivers. This dynamic is comparable to an individual’s credit score affecting how likely it is for a bank to grant them a loan and for a country, it is a situation that can take decades to recover from. Lebanon is passing through an unprecedented economic and financial crisis unprecedented since its 1975-90 civil war. In the event of a default, credit ratings agencies have already indicated there would be a further downgrade of the country. Lebanon has a lot more than just maturing Eurobonds to worry about. In the absence of the corona virus outbreak, it was only a matter of time before USD withdrawals ceased, as the existing stock is dry & the exchange rate would have continued depreciating (as I & others explained previously). The yield on the 5Y Lebanese Eurobonds remained unchanged at … Local banks are expected to take a haircut on their holdings of domestic government bonds, with Lebanese media reporting that a draft 2020 budget outlines around a $3 billion trim. Lebanon can afford to wait to issue between $2.5 billion to $3 billion in Eurobonds until the market conditions are ripe but the government will definitely not miss the $650 million Eurobonds which mature early next week, a banking source said. Crisis-hit Lebanon’s government has to decide whether it should restructure or pay its $2.5 billion Eurobonds, including a $1.2 billion Eurobond maturing in March, $600 million maturing in April, and $700 million in June. Lebanon has used refinancing, by issuing more eurobonds, in the past to service debt repayments. "The difference between the actual spread of 485 bps on Lebanon's Eurobonds and the Goldman Sachs' model-implied spread of 376 bps shows that the undervaluation is at 109 bps," the report said. Lebanon is in the midst of a dangerous multifaceted crisis: an economic, financial, and socio-political one. Economy Minister Raoul Nehme, a former banker, explained on MTV that the discussions with creditors, and therefore banks, were not expected until after the plan was finalized in the context of negotiations with the IMF. (File photo: Dalati Nohra/Handout/Reuters), Last Update: Wednesday, 20 May 2020 KSA 10:05 - GMT 07:05, Kuwait’s emir appoints Sabah al-Khalid as new PM, American charged with using $2 million of coronavirus aid for luxury cars, homes, Coronavirus: Indonesia deports Russian social media star after party, Coronavirus: Multiple daily COVID-19 deaths at Lebanon hospitals becomes new normal, Explainer: Everything you need to know about Russia’s Sputnik V COVID-19 vaccine, Swiss crematorium swamped by coronavirus deaths, tries to enable peaceful goodbyes. “The difference between the actual spread of 485 bps on Lebanon’s Eurobonds and the Goldman Sachs’ model-implied spread of 376 bps shows that the undervaluation is at 109 bps,” the report said. "Lebanon is very close to its obligation which is due in March and there is not enough time to go to the IMF to put a clear program for reforms that allows Lebanon to reschedule its debt," Ghobril said. Introduction. As media reports swirl around Lebanon’s upcoming repayment of a $1.2 billion eurobond due March 9, many phrases have been used to discuss the route that authorities may take. It added that Lebanon’s long-term Eurobonds were the only undervalued bonds among 20 B-rated sovereigns with these maturities. To stave off some of the pain, Lebanon will need to make some tough choices to regain the confidence of its people and the markets. “Moody’s recent report admitted that Lebanon has never defaulted on the payment of its debts. Not surprisingly, the price of Lebanese eurobonds have recently plummeted to historic lows, with rating agencies downgrading Lebanon's sovereign and bank debt to junk territory, while credit default swap rates – the cost of insuring against default – have shot up to 2,500, second only to Argentina.. It added that Lebanon’s long-term Eurobonds were the only undervalued bonds among 20 B-rated sovereigns with these maturities. Euroyen and eurodollar bonds, for example, are denominated in Japanese yen and U.S. dollars, respectively. For consumers, this may mean an inability to withdraw their money from the financial system or further borrow from institutions with nothing left to lend. Eurobonds are usually "bearer bonds," meaning that there is no transfer agent that keeps a list of bondholders and arranges the interest and principal payments. Officials are currently probing the possibility of a debt restructuring process for the Eurobond. To help cut through the jargon, here is an explanation of each of these terms: Defaulting on a loan simply refers to a failure to repay the debt. Bloomberg delivers business and markets news, data, analysis, and video to the world, featuring stories from Businessweek and Bloomberg News Some estimates say a 70 percent haircut is needed, Reuters reported. "The Lebanese state will seek to restructure its debts, in a manner consistent with the national interest" through negotiations with creditors, Diab said in a live address. "The difference between the actual spread of 445 basis points on Lebanon's Eurobonds and the Goldman Sachs' model-implied spread of 355 bps shows that the undervaluation is at 90 bps," the Byblos Bank report explained. Lebanon eurobond crisis: Default, haircut, restructuring, refinancing explained, Lebanon PM Diab says government can’t pay its debt, suspends March bond payment, Shortages of food and medical supplies loom over Lebanon protests, Lebanon’s Prime Minister Hassan Diab leaves after giving an address where he informed the country would not pay its Eurobond on March 7, 2020. An example of refinancing was used above as a form of restructuring– when a loan with a high interest rate is paid off with a lower interest rate loan, leaving the debtor with lower payments. Eurobonds can be purchased in the same way as most other bonds through global stock exchanges. Explainer: With no self-pardon in hand, could Trump face legal issues as a citizen? He explained: “Last March, the government decided to suspend the payment of international debt bonds (Eurobonds), which required us to prepare a comprehensive financial plan that would serve as a platform for negotiating with creditors, and to submit it to the IMF, which responded to the government’s request for technical assistance at the time.” Defaulting on debt in the short term will reduce the amount that the country will need to pay back – more on this later – but this can have disastrous consequences in the long term. “The majority of the Lebanese people, as well as Parliament, absolutely reject the … For one, a progressive haircut is required. Key Takeaways. Debt restructuring is a tactic used by individuals, companies, and countries to try to avoid a potential default. This includes discussions of a “default” or a “haircut,” possibly twinned with “restructuring.”. Introduction. Diab explained that debt restructuring is part of a wider economic rescue plan, that seeks to cut state spending and save more than $350 million annually, including by downsizing the banking sector. Eurobonds explained (explainity® explainer video) - YouTube Lebanon’s prime minister Hassan Diab announced on Saturday that the country would default on its Eurobond debt due to the major financial crisis. So far, however, authorities have strongly denied rumors that a depositor haircut is on the table. These eurobonds should not be confused with Eurobonds with a … On Tuesday, credit ratings firm Fitch Ratings said that, “We believe that some form of government debt restructuring is probable.”. For one, a progressive haircut is required. Eurobonds are frequently grouped together by the currency in which they are denominated, such as eurodollar or Euro-yen bonds. The central bank (Banque du Liban, BdL) can always print enough liras to pay offer the former, but it is unable to print dollars to pay the latter. Eurobonds are usually "bearer bonds," meaning that there is no transfer agent that keeps a list of bondholders and arranges the interest and principal payments. Typically it is a bond that is issued by a non-European company for … However, given the country’s economic and political crisis, authorities would need to offer a high interest rate to offset risk for investors, causing greater problems in the future and calling into question whether the loan could ev… Lebanon has a lot more than just maturing Eurobonds to worry about. The difference between the actual spread of 523 bps on Lebanon’s Eurobonds and the Goldman Sachs’ model-implied spread of 284 bps shows that the undervaluation is at 239 bps,” the report said. The difference between the actual spread of 523 bps on Lebanon’s Eurobonds and the Goldman Sachs’ model-implied spread of 284 bps shows that the undervaluation is at 239 bps,” the report said. Explainer: With no self-pardon in hand, could Trump face legal issues as a citizen? Furthermore, Goldman Sachs classified Lebanon's Eurobonds that have a maturity of seven to 12 years as undervalued. Another downgrade would further impact Lebanon’s ability to borrow money in the future as lenders would demand higher interest rates for loans to an organization that recently defaulted. Lebanon — which ranked 137th on the list of least corrupt countries out of 180 countries, according to the 2019 Corruption Perceptions Index reported by Transparency International — is also slated to repay $1.2 billion in Eurobonds maturing March 9. An example of refinancing was used above as a form of restructuring– when a loan with a high interest rate is paid off with a lower interest rate loan, leaving the debtor with lower payments. These problems continue to stem from the years-long scheme that the local banking sector and authorities engaged in to maintain the financial system that led to the country’s economic crisis. Lebanon’s debt is among the largest in the world. Those who have deposits of over $1 million at a bank could receive a haircut of 50 percent, for instance. However, the virus did add some interesting dynamics. This is an illegal practice, according to the lawyer,” the banker explained. Figures released by the Ministry of Finance show that Lebanon’s gross public debt reached $85.32B during the first month of 2019, up from $80.39B in January 2019. This is the first time Lebanon has defaulted in the payment of its debt. The country’s credit rating will fall drastically and make it much harder for Lebanon to attract foreign investment and much more expensive to take out loans. Members of the IMF are seen leaving after meeting with Lebanese Prime Minister Hassan Diab at the government palace in Beirut, Lebanon. in Lebanon to be severe; economies which experience debt, currency, and banking crises simultaneously contract by about 8% before they recover. in Lebanon to be severe; economies which experience debt, currency, and banking crises simultaneously contract by about 8% before they recover. "Lebanon is very close to its obligation which is due in March and there is not enough time to go to the IMF to put a clear program for reforms that allows Lebanon to reschedule its debt," Ghobril said. Lebanon's finance ministry on Monday said it will "discontinue" payments on all dollar-denominated Eurobonds due in the next 15 years to safeguard dwindling foreign currency reserves. To stave off some of the pain, Lebanon will need to make some tough choices to regain the confidence of its people and the markets. Lebanese banks hold around $14.5 billion of the sovereign Eurobonds, the Central Bank holds $5.5 billion while the rest are held by foreign investment funds. For example, if an entity has multiple loans with different interest rates, it could take one large loan with a lower interest rate and repay the older loans in order to bring down overall repayments. Furthermore, Goldman Sachs classified Lebanon’s Eurobonds that have a maturity of seven to 12 years as undervalued. Why doesn’t the world sympathize with Tehran and Damascus? “We do not need a banking sector that is four times the size of our economy,” he said. In fact, the language is jumbled. Ghobril explained that defaulting on payment of Eurobonds must happen within a package by the International Monetary Fund (IMF). But the banks, holding that the state is solely responsible for the crisis and should deal with the consequences, took the lead. The state issues the Eurobonds and not BDL,” the source explained. A U.S.-dollar denominated bond, or a bond of another currency, that is issued and traded outside of the country whose currency is used. The minister explained that applying a haircut on the Eurobonds depends on the negotiations with the bond holders. Ghobril explained that defaulting on payment of Eurobonds must happen within a package by the International Monetary Fund (IMF). However, given the country’s economic and political crisis, authorities would need to offer a high interest rate to offset risk for investors, causing greater problems in the future and calling into question whether the loan could ever be repaid. 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