LONDON: A group of Lebanon's bondholders, including some of the world's biggest investment funds, urged the new government on Tuesday to begin debt restructuring talks as soon as possible to help address a grave financial crisis.
Lebanon defaulted on its international debt in March 2020, after years of political upheaval and economic mismanagement left it unable to service a debt burden that was then worth more than 170% of GDP.
After a year of political deadlock, a new government formed this month under Sunni Muslim tycoon Najib Mikati, with three-quarters of the population now in poverty after one of the deepest depressions of modern history. read more
The Lebanese pound has lost 90% of its value over the past two years, food prices have soared by over 550%, and worsening shortages of basic goods including fuel and medication are making daily life a struggle.
The creditor group said in a statement that it hoped for a rapid restructuring process, which would need the government to "engage meaningfully with the International Monetary Fund as well as Lebanon's international creditors and official sector partners".
The government was not immediately available for comment.
It parliamentary backing on Monday for a policy program focused on a resumption of talks with the IMF and a restructuring of the financial sector.
The creditor group includes the heavyweight funds Amundi, Ashmore, BlackRock, BlueBay, Fidelity and T-Rowe Price as well as a group of smaller hedge funds.
It estimates it holds a "blocking stake" of more than 25% in 40% of Lebanon's various bond series, making it a critical player in any restructuring.
TALKS WITH IMF
The bulk of the remaining bonds are held by domestic commercial banks or the Lebanese central bank, which bought $3 billion of debt directly from a previous government in 2019.
Mikati's proposal includes the renewal of a recovery plan drawn up by the previous government, which set out a shortfall in the financial system of some $90 billion - a figure endorsed by the IMF.
Lebanon's defaulted bonds have rallied more than 50% in recent days, albeit from only 12 cents or so in the dollar to 18-19 cents.
The previous government said it had around $30 billion of eurobonds outstanding on international markets, plus another $50 billion issued on domestic markets.
Talks with the IMF last summer stalled after many of Lebanon's political players disputed the scale of losses.
Mikati has said the talks will not be easy, but are a necessity, not a choice.
He has given no details of any changes to the previous plan that might make it more palatable to those who opposed it.
"Any debt restructuring talks are conditional on an IMF program, and that in turn is conditional on a reform plan and banking sector reform," said Talal F. Salman, who resigned a year ago as Lebanon's lead negotiator in restructuring talks and was one of the key figures in the decision to default.
"There is a massive interconnection between the restructuring of Eurobonds and the financial system as you can’t do one without another."