Restructuring Talks Resurface for Lebanon’s Bondholders Amid Economic Challenges
Lebanon’s bondholders are close to appointing a financial adviser as restructuring discussions resume after five years of default. Following a leadership change and a ceasefire with Hezbollah, the government aims to renew negotiations with the IMF. The bond prices have rebounded to 18 cents, indicating potential progress toward debt restructuring amidst a deeply troubled economy.
Lebanon’s international bondholders are nearing the appointment of a financial adviser, as discussions with the government regarding debt restructuring are anticipated to resume after five years of defaulting on $29 billion in Eurobonds. Initial negotiations stalled in 2022 when the government rejected proposals from the International Monetary Fund (IMF), causing bond values to drop to approximately six cents on the dollar amidst a worsening economic crisis.
In 2023, the long-serving governor of the central bank, Riad Salameh, resigned amid numerous irregularities. This led to a period of inertia within the banking sector, where deposits remain largely inaccessible and banks became aware that recapitalization would be necessary as part of any restructuring efforts. With a new technocratic government now in place, there is hope for the revival of negotiations with the IMF and creditors alike.
Following a ceasefire between Israel and Hezbollah in November, bond prices have increased significantly, now valued at 18 cents. Recent visits by IMF staff to Beirut have included meetings with President Joseph Aoun and Prime Minister Nawaf Salam, reaffirming the IMF’s readiness to assist Lebanon’s efforts in addressing economic challenges. Ernesto Ramirez Rigo, IMF mission chief, has emphasized the need for a comprehensive strategy for economic rehabilitation, noting the critical roles of financial sector restructuring and sustainable debt management to rejuvenate Lebanon’s economy.
A restructuring adviser underscored the necessity for bondholders to be integral to the reform process, with the future focus of Lebanon’s economy remaining uncertain. The upcoming elections in 2024 could incentivize a financial restructuring agreement, paving the way for potential funding from Saudi Arabia and other bilateral sources.
Six financial firms, including Rothschild and Morgan Stanley Investment Management, have been invited to pitch to the expanded ad hoc bondholders group. This group has welcomed new members, indicating a reconfiguration of support for bondholders. Lebanon’s debt-to-GDP ratio was previously recorded at 178% before the 2019 default, and with a dramatic 40% decline in GDP since, creditors may face considerable losses under current estimations.
Reconstruction costs are forecasted at $14 billion, and while the value of domestic government debt has diminished due to inflation, the complexities of restructuring the central bank, which has a projected shortfall of $45 billion, present additional challenges. Negotiations for bank recapitalization are expected to run concurrently with discussions with creditors, allowing for a potentially more expedited resolution than the previously prolonged stalemate.
In summary, Lebanon’s bondholders are working towards a financial advisory appointment to facilitate restructuring talks after years of stagnant negotiations. The newly formed technocratic government aims to engage with the IMF to revitalize the economy while navigating the complexities of banking sector reforms and substantial national debt. Enhanced participation from bondholders and revitalized financial collaborations may be pivotal in expediting Lebanon’s economic recovery efforts.
Original Source: www.zawya.com
