Lebanon needs political action to avoid economic collapse -finance minister

Finance Minister Ali Hassan Khalil made the remarks following a meeting with the government’s economic and social council. (Reuters)
Updated 12 September 2018
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Lebanon needs political action to avoid economic collapse -finance minister

BEIRUT: Politicians in Lebanon, still lacking a government four months after national elections, need to take action to stop the country’s economic crisis becoming an economic collapse, its finance minister said on Wednesday.
Infighting has hampered efforts by Prime Minister-designate Saad Al-Hariri to form a national unity administration, leaving a political vacuum that has increased concerns for the highly-indebted economy.
“We are not concealing this crisis, but will this crisis inevitably lead us to a collapse? ... I say that with strong political commitment, political will and cooperation between all sectors we can avoid it,” caretaker Finance Minister Ali Hassan Khalil said.
His comments, which followed a meeting with the government’s economic and social council, were televised. Asked by Reuters what he meant by collapse, he replied “the economic situation.”
Leaders from across the political spectrum agree a government urgently needs to be formed, but a deal remains elusive.
Its formation would be likely to help raise investor confidence in the country, unlock billions of dollars in donor funding and enable parliament to embark on long-overdue reforms.
In April, international donors meeting in Paris pledged more than $11 billion of investment, but they want evidence of economic reforms first. At that meeting Hariri promised to reduce the budget deficit as a percentage of GDP by 5 percent over five years.
Lebanon had the world’s third highest debt-to-GDP ratio, at over 150 percent, at the end of 2017. The International Monetary Fund wants to see immediate and substantial fiscal adjustment to improve debt sustainability.
On Wednesday, parliamentary speaker Nabih Berri said Lebanon did not have the luxury of time when it came to forming a government “especially when it comes to the economic situation.”
Central Bank Governor Riad Salameh has said the Lebanese pound, which is pegged to the dollar, will remain stable and that the central bank has high foreign reserves.
He reiterated those comments to broadcaster CNBC on Tuesday.
Lebanon’s foreign assets excluding gold were $43.56 billion at the end of August, according to central bank data.


Dubai property developers put bond plans on hold

Updated 54 min 5 sec ago
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Dubai property developers put bond plans on hold

  • Dubai property prices have fallen since a mid-2014 peak, hurt by a period of weak oil prices and muted sales
  • Residential prices fell 6 to 10 percent in 2018 and are expected to drop 5 to 10 percent more this year

DUBAI: Dubai’s Emaar Properties and state-owned developer Nakheel have put on hold plans to issue US dollar-denominated bonds, Emaar and sources familiar with the bond issues said, amid a real estate downturn and volatility in emerging markets.
Emaar told Reuters that it had put on hold a planned bond issue, blaming rising interest rates but did not elaborate. Nakheel declined to comment.
Three financial sources said the firms had planned dollar-denominated sukuk, or Islamic bonds, and would have had to pay a yield premium to attract enough investors due to concerns about Dubai’s property price slide and emerging market volatility.
Dubai property prices have fallen since a mid-2014 peak, hurt by a period of weak oil prices and muted sales, although the slide has not come close to the more than 50 percent plunge seen in 2009-2010, which pushed Dubai close to a debt default.
Residential prices fell 6 to 10 percent in 2018 and are expected to drop 5 to 10 percent more this year, according to Savills. The drop has hurt developer earnings.
Emaar, developer of Burj Khalifa, the world’s tallest building, reported a 29 percent fall in the third quarter last year, while Dubai’s second-largest listed developer DAMAC reported a 68 percent drop.
The financial sources said Emaar and Nakheel hired banks a few months ago to issue Islamic bonds but shelved the plans.
An Emaar spokesperson said its decision to put its plan on hold was not linked to the property market performance.
“The bond was considered more than a year ago and was put on hold due to increasing interest rates. The decision was not based on market conditions,” the spokesperson said.
Dubai government owns a minority stake in Emaar.
Nakheel, developer of palm shaped islands off Dubai, was one of the worst hit by Dubai’s 2009-2010 real estate crash, forcing it into a massive debt restructuring. It has not issued public debt since it nearly defaulted in 2009.
The market downturn has put pressure on property companies’ existing bonds, which investors use as a parameter to establish the price of new debt sales from borrowers in the same sector.
In secondary debt markets, yields of bonds issued by Dubai developers have risen significantly over the past few months, underperforming corporate debt from other sectors.
DAMAC’s $500 million sukuk due in 2022 and $400 million Islamic paper due in 2023 saw their yields spike by over 200 bps and 150 bps, respectively, since early November.
BofA Merrill Lynch last week forecasted weaker booked sales and gross margin for DAMAC, saying it was likely to be pressured by the property market and upcoming debt and land payments.
DAMAC did not immediately respond to a request for comment.
Yields on a $600 million sukuk issued by private developer Meraas, due in 2022, have jumped by around 120 basis points in the same period. Meraas declined to comment on the move.