Osama Habib| The Daily Star
BEIRUT: Lebanon’s successful issuance of its largest-ever Eurobond of $2.2 billion will meet the state’s short-term needs, but Parliament must approve further bond sales to cover all expenses for 2015, Finance Minister Ali Hasan Khalil said Tuesday.
Khalil said the Finance Ministry was seeking to tap the market for $4.4 billion in Eurobond sales to meet all its needs for 2015.
“We have raised $2.2 billion but based on the authorization from Parliament, we are only entitled to issue $2.5 billion this year. We have the right for an additional $300 million, but this amount is not sufficient to meet the full needs of the state,” the minister said.
The minister called on Parliament to approve the issuance of more bonds this year.
Khalil disclosed that the $2.2 billion sale, the largest foreign currency bond sale in Lebanon’s history, was $4.9 billion or 233 percent oversubscribed. The issuance was divided into two categories: the first is for $800 million with a 10-year maturity period and 6.2 percent interest, and the second is for $1.4 billion with a 15-year maturity period and 6.65 percent interest.
Originally, the Finance Ministry was aiming to raise $1 billion, but the interest shown by local and foreign investors was overwhelming, Khalil told reporters.
Foreign investors snapped up 15 percent of the new issue and the rest went to local investors and bankers.
Lebanon has been tapping local and international markets since 1996 to finance the public debt and cover government expenditures.
Khalil said that despite its current political difficulties, Lebanon still earns the confidence and respect of the world and the best example of this trust is the foreign participation in the new Eurobond issue.
“The foreign denominated sovereign bond is quite significant because this issue has been concluded at a very low cost compared to other local bonds in Lebanese pounds. The cost of borrowing in local currency for a 10-year bond is 7.46 percent compared to 6.20 percent for bonds in foreign currency and the same maturity period,”’ Khalil said.
The public debt at the end of 2014 stood at $66.5 billion, 62 percent of which is in Lebanese denominated currency and 38 percent in foreign denominated currency.
“The public debt in 2014 rose by 5 percent compared to a 10 percent increase in 2013, and this is a good indicator which we need to take into consideration,” Khalil said.
Khalil argued that the debt-to-GDP ratio in 2015 should be lower provided that Lebanon achieves growth of at least 2.5 percent.
“Based on IMF projections of 2.5 percent growth in 2015, we believe that the debt to GDP this year should range between 129 percent to 133 percent compared to 135 percent in 2013,” Khalil said. He also assured that international ratings agencies would not further downgrade Lebanon’s sovereign foreign currency because the debt to GDP this year is expected to be lower than 2013.
Joe Sarrouh, the adviser to the chairman of Fransabank, said the successful bond issuance should be matched by comprehensive reforms.
“This is a landmark achievement under the delicate geopolitical conditions that Lebanon and the region are passing through. But still real reforms are needed in all government levels,” Sarrouh told The Daily Star.
“We need comprehensive reform with a timetable. These reforms include restructuring of the public debt and restructuring of the government departments as well as activating the public-private-partnership,” he added.
Nassib Ghobril, chief economist of the Byblos Bank Group, told Reuters that Parliament may approve more borrowing, but Lebanon should focus on reducing debt. “If we stay as we are without a president, the parliament could possibly authorize another [debt] issuance, I don’t see why not,” he said.
But “from an economic perspective and public finances perspective, the priority should be to reduce government spending, fight tax evasion and improve tax collection.”