Lebanese invest in $950m Eurobond

The Finance Ministry building is seen in Beirut The Lebanese government successfully closed a $950 million Eurobond issue this week as Lebanese and foreign investors showed increasing appetite for the sovereign bonds despite the gloomy economic picture in the country.
The Finance Ministry originally wanted to tap the market for a $700 million in Eurobonds but the issue was 30 percent oversubscribed, resulting in the sale of $950 million worth of bonds.
The first tranche consisted of $600 million in Eurobonds (originally it was $350 million), which will mature on Oct. 12, 2017, with a yield of 5 percent.
The second tranche stood at $350 million with a 6.4 percent interest rate. This 14-year issue will mature on April 27, 2026.
The Finance Ministry said it would issue a detailed report on the new issue in one week but a source at the ministry told The Daily Star that this was one of the best deals Lebanon has received in many years.
“The yields on these bonds are relatively very low and are even lower than other bonds offered in other markets. This issue is not a new debt but rather a rollover of an older issue,” the source added.
It was also reported that 30 percent of the subscribers were non-Lebanese and the rest of the issue was snatched up by Lebanese banks which already hold a big chunk of Lebanon’s public debt.
The source declined to say whether the Finance Ministry intended to borrow more money from the market this year to fund the government’s needs.
The ministry designated Byblos Bank and Bank of America-Merrill Lynch as the lead managers for issuing $700 million worth of Eurobonds.
The new issue will be used to refinance $293 million and 115 million euros in Eurobonds maturing in March and April 2012 respectively.
The Eurobond’s tenors and pricing have not been decided yet. Byblos Bank co-lead managed in May 2011 a $1 billion dual-tranche Eurobond under Lebanon’s Global Medium Term Note program.
The Finance Ministry said earlier it would be tapping the local market for financing soon to issue $5 billion worth of Eurobonds and treasury bills to cover the public debt in 2012.
The $5 billion issue will be split into two categories: the first for $2 billion in Eurobonds, and the second $3 billion batch to replace the outstanding bonds both in Lebanese pounds and foreign currencies.
Lebanon has been aggressively seeking new funds through the issuance of bonds, taking advantage of a gradual drop in interest rates in the international markets.
Finance Minister Mohammad Safadi had even suggested that the government should issue bonds on the international market since the interest on foreign bonds is far lower than on bonds offered in the local market.
But the Finance Ministry may be compelled to tap the market for more bonds to finance essential infrastructure projects such as electricity and water.
If this happens then the debt will surely rise to $60 million by the end of this year.
Lebanon’s gross public debt reached $53.6 billion at the end of January 2012, constituting an increase of 2.6 percent from end-January 2011.
Domestic debt reached $32.8 billion at end-January 2012, up by 4.5 percent annually, while external debt stood at $20.9 billion, down by 0.3 percent year-on-year.
Local currency debt accounted for 61.1 percent of gross public debt at end-January 2012.
The Central Bank last month raised the interest rate on the two-year treasury bill by 1 percent to encourage banks to buy these bonds and this will inject more cash into the treasury.
Lebanese banks have often said they are willing to swap maturing bonds but they have no desire to borrow above the value of these bonds.
International rating agencies still believe Lebanese banks are highly exposed to public debt although these banks are gradually trying to reduce their dependence on government bonds.
Some analysts say the Lebanese sovereign bonds have lower yields than Europe countries’, many of which are facing a severe recession.