Franklin Templeton, which oversees more than $690 billion of assets worldwide, said that the Lebanese government will have to renegotiate its $30 billion of eurobonds debt load to stave off an economic collapse, reported Bloomberg.
Mohieddine Kronfol, Franklin Templeton’s Chief Investment Officer for MENA fixed income, said, “The system is broken, and the credibility is gone, we need to see some decisive action and some engagement with some multilateral agency or some donor countries to move forward.”
Lebanon has an unblemished record of bond repayment through war and political strife and government officials have repeatedly ruled out a default. But investor confidence in its ability to meet liabilities has crumbled following weeks of street protests that have led to Prime Minister Saad Hariri’s resignation.
The nation’s eurobonds are the world’s worst performers in emerging markets this quarter despite a package of emergency measures rolled out in October 2019.
The yield on the government’s $2.1 billion of notes maturing in April 2021 has almost quadrupled this year to 42 per cent, with the price collapsing to 66 cents on the dollar. Its debt risk, as measured by five-year credit-default swaps, has risen the most in the world since the end of September 2019, to 1,615 basis points.
The Arab nation has $30 billion of dollar bonds outstanding; the figure is $46 billion when interest is included.
Attempts to secure financial assistance from Gulf allies have so far come up empty. Lebanon’s finances are becoming ever more precarious as it suffers shortages of foreign currency and even fuel, while struggling to attract bank deposits, a key source of funding for the government.
“Time is passing by and if they cannot move forward, the concept of a voluntary debt restructuring starts diminishing and it becomes a very hard landing or a collapse,” said Kronfol, who also oversees Templeton’s Global Sukuk business.
“Lebanon is not a trade that we consider in the short term, at least until we see some institutional developments,” added Kronfol.