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Lebanon is about to enter the crucial first phase of talks aimed at renegotiating its $30 billion in Eurobonds after saying at the weekend it won’t pay dollar debt coming due on Monday.
The government’s declaration on Saturday that it won’t repay the $1.2 billion Eurobond puts the country on course for the first default in its history as it copes with dwindling foreign-currency reserves and inflation running in double digits. Talks will be complicated by high foreign ownership of some of the bonds and political divisions that have left the economy on the ropes.
“Sovereign defaults are relatively complicated to begin with, but this is compounded by the rather unique political environment in Lebanon,” said Abdul Kadir Hussain, the head of fixed-income asset management at Arqaam Capital in Dubai. “This will be drawn-out and complicated and will probably have many parties involved.”
Once boasting an unblemished record of bond repayment through war and political strife, Lebanon came undone after months of protests fed its worst financial crisis in decades just as remittances from abroad -- the main source of hard-currency revenue -- slowed to a trickle. Led by a new government backed by Hezbollah and its allies, one of the world’s most indebted nations will be taking on creditors at a time the global economy is reeling from the coronavirus outbreak and the start of an oil-price war.
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