Lebanon Converts More Domestic Debt In New $500Mn Eurobond

VOL. XLV

No 27

8-July-2002

LEBANON

Lebanon Converts More Domestic Debt In New $500Mn Eurobond

In a further attempt to reduce Lebanon’s debt burden, the Lebanese Government has issued a $500mn four-year Eurobond which will replace existing debt denominated in local currency. A statement issued jointly by the Lebanese Ministry of Finance and the Central Bank of Lebanon confirmed that the Central Bank was the sole subscriber to the $500mn Eurobond issued on 27 June, as it was to the $1bn three-year issue last March (MEES, 11 March). The statement added that the latest issue would replace an equivalent amount in the Central Bank’s portfolio of Lebanese currency Treasury Bills carrying 14.14% interest with a two-year maturity, and would, therefore, not raise total public debt. The issue, carrying a coupon of 10.5%, is listed on the Luxembourg Stock Exchange. The Central Bank’s recent successes in selling the $1bn March issue to Malaysia, Saudi Arabia and the other Gulf states, as well as to local investors, was instrumental in prompting the government to issue the latest Eurobond, the statement explained. The issues of March and June are part of the government’s plan this year to swap $2bn worth of local debt for foreign debt. Total debt is now estimated at $28.6bn, of which foreign debt is less than 35% and the remainder local. Analysts have warned that the government cannot follow this swap policy indefinitely because it will increase external debt. In the meantime, however, the government is hopeful that it will be able to raise some $5bn in the next three years from privatization and to cut government spending by 10% in 2003.

Meanwhile, France announced last week that it would host the Paris II conference of donor nations to help Lebanon, following talks between French President Jacques Chirac and visiting Lebanese Prime Minister Rafiq al-Hariri. The IMF Director Michel Candessus has been assigned to organize the conference, a statement from President Chirac’s office said, although no date for the meeting was specified. Mr Hariri told journalists he hoped that it would take place before the end of 2002. Paris I, which was held in February 2001, was also hosted by France. Mr Hariri’s success in securing Paris II was hailed by Lebanese economist Marwan Iskandar as “a very good step for the country.” However he warned that Lebanon would have to proceed with privatization in order to receive long-term soft loans, adding the government should cut budget expenditures by 10% across the board.