Lebanon plans USD 2 billion Euro-bonds to cut servicing costs

Lebanon plans to sell up to USD 2 billion in Eurobonds over the next year, Central Bank Governor Riad Salameh said, part of a debt-swap aimed at reducing servicing costs in the world’s third most indebted country.

The country held its first parliamentary election in nine years on Sunday, and Salameh said it was important that the next government take action to revive the economy, which has been battered by sectarian conflict and the war next door in Syria.

The “government will be judged by the markets depending on its commitments economically as Lebanon is at a stage where positive economic and financial news are needed,” Salameh, a former Merill Lynch banker, said Friday in an interview with Bloomberg TV.

Lebanon has struggled for years to revive its economic fortunes. To turn the economy around, factions who win at the ballot box will need to set aside feuds that have often paralyzed decision-making. In the meantime, parliament has approved a new round of financial engineering to ease the burden on government finances.

Salameh, who has steered the financial sector through repeated upheavals since taking the helm at the Banque Du Liban in 1993, said the central bank would give the finance ministry local-currency Treasury bills at low-interest rates in return for dollar-denominated Eurobonds by the end of this month, in a transaction worth USD 5.5 billion to USD 6 billion. It would sell onUSD 2 billion worth.

“We might not do the USD 2 billion in one operation. We will cap it at numbers between USD 500 million and USD 1 billion,” Salameh said, adding that the rest would stay on central bank books for future years.

Lebanon carried out a similar swap in 2016, offering Lebanese banks incentives to buy up some of that debt in an unconventional move criticized as risky by some economists. Salameh said incentives were not needed this time and the central bank hopes to scale back such programs as the government’s position improves and the pressures of the war in Syria ease.

“The banks are seriously implementing the U.S. laws in their daily operations and correspondent banks are comfortable with the way the Lebanese banks are working,” Salameh said. “This is the best proof that things are being done seriously in Lebanon.”

Salameh said he was “happy” that foreigners hold about 30 percent of Lebanese Eurobonds, despite the risks increased exposure to global markets can bring, “because it has turned these bonds into international assets.”