The Lebanese government is planning to sell a 20-year sovereign eurobond, its longest ever, in a deal that will gauge the degree of international investment community’s appetite for Lebanese risk.
The government’s plans were revealed August 21, when the finance ministry announced that it had selected investment banks Credit Suisse First Boston (CSFB) and Morgan Stanley Dean Witter (MSDW) to co-lead the issue. Ministry officials suggested the issue would likely occur in September, reported Lebanon's Daily Star.
Bankers and officials have yet to comment on the size of the issue, which will be denominated in U.S. dollars and placed mostly with U.S. and European institutions. This will mark Lebanon's third eurobond issue thus far in 2000. Parliament has mandated the issuance of up to $1.5 billion worth of new foreign debt for the current year.
In late June, Lebanon issued $500 million of five-year debt to roll over a maturing $400-million eurobond. It later marketed an additional $250 million from a 10-year eurobond that initially was issued in September 1999.
The planned eurobond issue fits into the government's strategy of replacing costly, short-term domestic debt with less costly, longer-term foreign borrowing. Finance Minister Georges Corm has repeatedly promised to increase the proportion of public debt that Lebanon finances externally to 35 percent, from its present rate of 25 percent. Twelve months ago, the government was paying interest of over 16 percent to holders of two-year T-bills—then longest-dated form of domestic debt. In comparison, it could issue five-year dollar Eurobonds at a rate of merely 8.625 percent.
This interest rate gap has, however, narrowed significantly over the past year. The average yield on two-year T-bills fell almost two percentage points last autumn to its current level of 14.14 percent, while Lebanon paid a 10.25 percent coupon on last September's 10-year U.S. dollar Eurobond. Moreover, political uncertainty in the country's south might scare away potential investors, thus adding an extra premium to Lebanese debt.
The main buyers of the 20-year issue would likely be institutional investors in the United States and European pension funds, which will demand a higher risk premium than local Lebanese banks. The interest premium will likely be set close to the present 5.7 percent yield on US 30-year T-Bills.
It should be noted that ratings agency Standard & Poor’s has threatened to downgrade Lebanon ranking by the end of the year.
CSFB and Morgan Stanley both have previous experience in the Lebanese bond market. They were joint lead managers of a $400 million, 10-year eurobond last September, of which roughly one-third was placed with US institutions. – (Albawaba – MEBG).
© 2000 Mena Report (www.menareport.com)
