Lebanon’s central bank told to hold off on Eurobond plan: Sources

Lebanon‘s caretaker finance minister has asked the country’s central bank governor to hold off on selling Eurobonds due to mature in 2020 and using the proceeds to buy bonds that mature later, after ratings agencies warned the proposed swap could constitute a “selective default”, a source familiar with the matter told Reuters News Agency on Wednesday.

The central bank has proposed a Eurobond swap to ease pressure on dwindling foreign currency reserves amid a deep financial crisis. 

In a letter to central bank governor Riad Salameh, caretaker Finance Minister Ali Hassan Khalil said the government needed first to decide how it would finance its bonds maturing in 2020, the source told Reuters.

One of the most heavily indebted countries in the world, Lebanon has $2.5bn in Eurobonds due in 2020, including a $1.2bn bond set to mature in March.

In the letter, Khalil recognised the central bank’s right to manage its own bond portfolio but asked that it hold off on the swap because of the potential implications for its sovereign rating, according to the source.

Central bank chief Salameh told Reuters on Wednesday that no swaps would go forward before the government takes a decision on it.

Lebanon has been without a fully functioning government or economic rescue plan since Saad Hariri resigned as prime minister on October 29. He was pushed out by sweeping protests against the country’s 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.

The Ministry of Finance has asked Salameh to specify exactly what extra powers were being sought and on what legal basis, the source familiar with the matter said.