Lebanon has been without a government since 29 October 2019/Bloombergby Bloomberg
Lebanon has been warned by rating companies that a proposed Eurobond swap with local banks would be considered a ‘selective default.
The finance ministry sent a letter to Banque du Liban asking it to hold off on the deal. Based on their communication with the ministry, rating companies could declare Lebanon to be in breach of its obligations because it is considered a distressed exchange.
Given the threat to the sovereign rating, the ministry has asked the central bank not to pursue the transaction until the government decides on a financing plan for the Eurobonds maturing in 2020.
Last week, Riad Salameh, Banque du Liban Governor described the proposals as ‘voluntary’ and dependent on the consent of Lebanese banks.
Moody’s and S&P Global rate Lebanon CCC, eight steps into junk territory while Fitch Ratings assesses it two levels lower.
Lebanon has been without a government or economic rescue plan since the resignation of Saad al-Hariri as Prime Minister on 29 October 2019 due protests against the ruling elite.
Salameh also asked for extra powers last week, saying he wanted to standardise banking controls. Commercial banks have individually imposed controls on hard currency, putting tight caps on dollar withdrawals and blocking most transfers abroad.
Reuters reported that the finance ministry asked Salameh to specify exactly what extra powers were being sought and on what legal basis.