Cabinet sought more cash from Eurobonds

Minister Mouhamad Safadi meets a Delegation of Regie. Monday, December 17, 2012 (The Daily Star/Dalati Nohra)

BEIRUT: Finance Minister Mohammad Safadi hailed the successful issuance of $1.550 billion in Eurobonds but admitted that the government had hoped to raise more cash from the transaction.

Speaking to the Al-Markeyah news agency, the minister said the government had hoped to raise $2 billion, but Lebanese banks, which snapped most of the issue, were not too eager to subscribe to more bonds with longer maturity because the yield was relatively low.

The Finance Ministry secured $800 million in cash while the remaining issue was exchanged with bonds with longer maturity.

Safadi said the war in the Gaza Strip was one of main reasons behind the reluctance of commercial banks to buy more bonds.

“Some banks have said they will only buy new bonds if the government sincerely pursues administrative and financial reforms,” he explained.

Francois Bassil, the chairman of Byblos Bank, said Lebanese banks were discouraged to buy more Eurobonds because most of these bonds had long maturity and low return.

“I think this transaction was in the interest of the state, because if the treasury saved 1 percent it would be saving $500 million to $600 million a year,” Bassil said.

However, the banker called on the government to stop tapping the market for more bonds and focus instead on financial reforms.

There was general agreement among bankers to swap the maturing sovereign bonds with new bonds even if the yield on them was too low.

Bankers insisted that the government should not default on the payment of its debts as this could induce the international rating agencies to downgrade the currency of Lebanon.

Most economists argue that the massive cash of commercial banks and the Central Bank’s foreign currency reserves are sufficient to keep rolling over the maturing bonds for many years.

The International Monetary Fund has advised the government to raise the interest on the sovereign bonds between 50 basis points and 100 basis points to encourage banks to buy these treasury bills.

A version of this article appeared in the print edition of The Daily Star on December 18, 2012, on page 5.




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