“Eurobonds” and Lebanon’s “investment opportunity”
Lebanon has entered its fifth year, since it stopped paying the due installments of Eurobond debt on March 9, 2020, without creditors moving to collect their money during the past four years. Likewise, the Lebanese government did not move to negotiate with creditors and agree with them on a specific settlement (at least rescheduling). Since the terms of the contracts of these bonds have specified for their holders a period of 5 years to claim interest, and 10 years to claim the principal of the debt, from the date of stopping payment, so creditors can file lawsuits against the Lebanese state before the New York courts, before March 9, 2025, so that they do not lose their right to Interest, which is estimated so far at about $10 billion.
When Hassan Diab, the Prime Minister of Lebanon at the time, announced the cessation of payments, the total amounts due between March and June 2020 were about $5.2 billion, and he justified his decision by saying that “it is no longer possible to continue borrowing to finance the reality of corruption, and the time has come for us to restore ethical behavior in our governance.” And restore confidence in our country.” The decision was linked to reform provisions that Diab announced his commitment to, including combating corruption and tax evasion, structuring state debts, conducting fair negotiations with creditors, restructuring the banking sector and protecting deposits, as well as reforming the judicial system.
If Lebanon’s failure to pay constituted a shift in the level of the crisis, as the negative view of its economic and credit performance became entrenched at the international level, the Diab government was unable to fulfill its obligations, nor was the Najib Mikati government (which came after it and is currently continuing), to implement any project. Reformist, despite international pressure, especially the International Monetary Fund programme, it even failed to address the debt problem amounting to about 92 billion dollars, of which 61 billion dollars were in Lebanese pounds, most of which had been “dissolved” as a result of the deterioration of the lira’s exchange rate. As for the Eurobonds, their value was about 31.3 billion dollars, distributed among local banks with a share of 13.8 billion dollars, and the Bank of Lebanon (5 billion), while the share of foreign investors was about 12.48 billion dollars. But that “distribution” changed as a result of developments in the crisis, which prompted local banks to sell foreign investors bonds worth about $9.8 billion, at a low price, and thus their share rose to $22.3 billion. With interest taken into account, the debt owed by the Lebanese state according to the nominal price of the bonds rises to more than 40 billion dollars.
The creditors are betting on winning the lawsuits before the American courts and seizing the state’s assets, including the amount of gold deposited in the United States, in accordance with the terms of the Eurobonds. In an indication of the dwindling hopes for the future of the Lebanese crisis, and the decline in the hopes of some investors, these bonds recorded successive declines in value, until they reached about 5 cents per dollar (i.e. only 5 percent of the nominal value of the bond).
But with recent talk about the possibility of Lebanon assigning a foreign bank to buy a quantity of these bonds for the state, this has contributed to raising the price among speculators to about 7 cents. If the purchase is completed, a large portion of the external debt can be extinguished, and savings can be achieved for the treasury. Although the Governor of the Bank of Lebanon, Wassim Mansouri, understood some of the difficulties, he seemed eager to participate in the process, which reassured some foreign banks that had shown interest in the Lebanese market, and found in “banking bankruptcy” a good opportunity for profitable investment, and they were betting that the situation in Lebanon would not remain as it was. And that regional conditions will return to some form of stability sooner or later.
*A Lebanese writer specializing in economic affairs
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