Thread by @benredd

THREAD: It's looking more and more likely Lebanon's eurobond issue will be delayed/canceled in favor of a deal between the Ministry of Finance and BDL, the central bank.
dailystar.com.lb/Business/Local…

Just last month, MoF was bullish on tapping the market (read: mostly Lebanese banks) to bring in $$$ to pay off dollar-denominated debt coming due. They seem to have made an about-face.

Apparently, MoF made a deal with BDL to cover the $500m that was due last month to ... BDL (assuming it didn't sell a significant portion of the eurobond since it was issued).

But 28% of the $650m due Monday is going to international investors (again, assuming the international/domestic ownership ratio hasn't significantly changed since the 2011 issue)
finance.gov.lb/en-us/Finance/…

If BDL is covering this rather than markets, that's $182m flowing out of the country ... which is not great since the country is struggling to keep dollars flowing in.

Luckily, BDL has a lot of dollars: about $30 billion in FX reserves.

So why is this option potentially better than a new eurobond issuance?

Well, rolling over these eurobonds (i.e. issuing new $-denominated debt to pay off old $-denominated debt, which is all a 'eurobond' is, despite the name) never seemed like an especially great idea.

Why? You'd basically be exchanging costlier debt (higher interest that the MoF has to pay investors) for lower-cost debt. That's because the market rate for Lebanese eurobonds is higher today: the MoF has to promise better returns for investors to give Lebanon their $$$.

Take a look at this link. Click on the 'Local Department' tab, and you'll see a list of traded Lebanese eurobonds. Compare the 'Offer Yield' (how much you make if you buy the eurobond now) to the 'Coupon Rate' (how much original investors would have made).
bankaudi.com.lb/private-bankin…

You'll see the yields are much higher than the original coupon rate for most eurobonds ... often 4 percent higher or so.

Now, if you've got a lot of $$$ and you want to invest in Lebanese eurobonds, you'll be looking for the highest rate among all of these (more or less).

Which means if the MoF comes out with a new eurobond—like they were supposed to do Monday—they need to offer an even better rate than what's already on offer. Otherwise all those people with the $$$ aren't going to buy it.

Given the current (very high) rates, that's great for investors who get more money, but atrocious for MoF and Lebanon's state finances. So maybe best that they delay the eurobond issue.

Looking forward, it seems MoF/BDL may be poised to hold out even longer. The next major eurobond due is $1.5b on 28 November.

As Byblos Bank's Nassib Ghobril told The Daily Star (linked above): “The Central Bank will probably pay the $650 million bond just like it paid the $500 million Eurobonds in April of this year. It will also pay the $1.5 billion that matures in November.”