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Lebanon's bonds plunge to record lows as Greylock forms group

Lebanese banknotes displayed at an exchange office in Beirut, Wednesday, Nov. 8, 2017. (The Daily Star/Mohammad Azakir)

Lebanon’s foreign debt sank to a record low as speculation mounted that the government may not repay a $1.2 billion Eurobond due in less than a month.

Investors are pondering the possible shape a default might take, with the crisis-ridden nation’s government wrangling over whether to continue servicing its debts. On Wednesday, distressed-debt investor Greylock Capital Management announced it and other bondholders had formed a group to talk to the government about its options.

The $1.2 billion of notes, due on March 9, plunged 12 cents to 70 cents on the dollar as of 12:56 p.m. in London. Lebanon’s $2.1 billion bond maturing in April next year fell 8 cents to 38, with the yield climbing above 100 percent for the first time.

“This group will facilitate communication between disparate creditors and stands by to engage with the Lebanese Republic in any discussions,” Hans Humes, chief executive of New York-based Greylock, said in an emailed statement.

The government should restructure its debt as soon as possible to prevent Lebanon’s economic and political crisis from worsening, according to Franklin Templeton, which oversees about $690 billion of assets worldwide.

The nation’s Eurobonds, most of which trade at less than 50 cents on the dollar, and its credit-default swaps already reflect expectations of a default within the next 12 months, said Mohieddine Kronfol, the firm’s chief investment officer for Middle Eastern and North African fixed income.

“The reality is whether they pay this March Eurobond or not, the market is saying that Lebanon will default,” Kronfol, who doesn’t hold the nation’s debt, said in an interview in Dubai. “The longer you wait, the more pressure you’re going to put on the country.”

Lebanon will ask the International Monetary Fund for technical assistance to draw up a stabilization plan for its financial and economic crisis, including a plan to restructure public debt, Reuters reported, citing an unidentified government source.

“The bonds are cheap, but without having the right political construct, a credible structural reform plan and the right partners in place, it will be very difficult for anyone to have confidence,” Kronfol said.

 

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