Will Gulf states buy Lebanon’s Eurobond?

Saudi Finance Minister Mohammed Al-Jadaan said last month that the Kingdom was discussing financial support with Beirut as Lebanon braces for debt repayments. (AFP)
Updated 05 October 2019

Will Gulf states buy Lebanon’s Eurobond?

  • Beirut is bracing for a heavy schedule of upcoming debt repayments, with billions due in November

LONDON: Lebanon may need support from loyal local banks or even friendly Gulf states to buy a new Eurobond as foreign investors look set to shun the sale, citing the country’s long list of troubles.

A Eurobond of around $2 billion is being prepared for sale this month, with cash raised earmarked for refinancing maturing debts and securing Lebanon’s public finances.

But international appetite appears muted, with fund managers wary of putting money into one of the world’s most indebted countries as it grapples with a multitude of national and geopolitical concerns.

“I wouldn’t touch it with a very large stick,” said Aberdeen Standard portfolio manager Viktor Szabo. “It looks like they are getting closer and closer to an implosion.”

Hopes that sovereign wealth funds or other regional allies may ride to the rescue are also fragile. If Saudi Arabia or wealthy Gulf backers plan to subscribe they have yet to say so.

With its debt-to-GDP ratio already at 140%, Lebanon needs to plug a widening balance of payments deficit and precariously low foreign exchange reserves. Worsening its plight has been a slowing of capital inflows from abroad, which Beirut has long relied upon to help meet its financing needs.

The country has a heavy schedule of FX debt payments coming up, with $1.5 billion due in November and a further $2.5 billion between March and June next year, according to Refinitiv data. Central bank governor Riad Salameh said this week it was ready to make those payments, but observers are skeptical about the sustainability of its debt burden without an injection of Gulf funds or reforms.

Lebanon has FX reserves of around $50 billion but analysts say that once money designated for specific things is subtracted, the useable amount is far smaller.

As the country’s economic malaise has deepened this year, its dollar bonds have tumbled around 16% in price and the cost of insuring its debt against the risk of default has surged beyond most countries bar Argentina’s. Lebanon might have to pay an interest rate of around 15% to access the market, said fund managers.

“With existing paper trading at a significant discount to par, it may be challenging to attract offshore interest for new bonds issued around par,” said Yacov Arnopolin, PIMCO’s senior portfolio manager for emerging markets external debt.

In the absence of institutional investor support for its Eurobond sale, Lebanon may have to rely on domestic banks that already hold much of its existing debt.

Local lenders have helped to keep Lebanon afloat for years by depositing fresh dollars at the central bank in an operation described by some analysts as financial engineering.

Nadim Munla, senior adviser to Lebanese Prime Minister Saad Al-Hariri, told Reuters he hoped upcoming trips by Hariri to the UAE and Saudi Arabia would yield “something concrete” after “encouraging signs” of a readiness by Gulf allies to deposit funds in Lebanon.

Saudi Finance Minister Mohammed Al-Jadaan said last month that the Kingdom was discussing support with Beirut.

Munla said it would be up to the states in question to decide on the form of such aid but they would either be deposits at the central bank or “most probably” a subscription to Lebanese Eurobonds. He did not say whether he was referring to the planned new Eurobond or another one.


Russia vows cooperation with OPEC to keep oil market balanced

Updated 21 November 2019

Russia vows cooperation with OPEC to keep oil market balanced

  • Moscow not aiming to be world’s No.1 crude producer, Putin tells annual investment forum

MOSCOW: President Vladimir Putin said on Wednesday that Russia and the Organization of the Petroleum Exporting Countries (OPEC) have “a common goal” of keeping the oil market balanced and predictable, and Moscow will continue cooperation under the global supply curbs deal.

OPEC meets on Dec. 5 in Vienna, followed by talks with a group of other exporters, including Russia, known as OPEC+.

“Our (common with OPEC) goal is for the market to be balanced, acceptable for producers and consumers and the most important — and I want to underline this — predictable,” Putin told a forum on Wednesday.

In October, Russia cut its oil output to 11.23 million barrels per day (bpd) from 11.25 million bpd in September but it was still higher than a 11.17-11.18 million bpd cap set for Moscow under the existing global deal. Putin told the forum that Russia’s oil production was growing slightly despite the supply curbs deal but Moscow was not aiming to be the world’s No. 1 crude producer. Currently, the US is the world’s top oil producer.

“Russia has a serious impact on the global energy market but the most impact we achieve (is) when working along with other key producers,” he said. “There was a moment not that long ago when Russia was the world’s top oil producer — this is not our goal.”

Russia plans to produce between 556 million and 560 million tons of oil this year (11.17-11.25 million bpd), Energy Minister Alexander Novak said separately on Wednesday, depending on the volume of gas condensate produced during cold months.

Russia will aim to stick to its commitments under the deal in November, Novak told reporters.

Russia includes gas condensate — a side product also known as a “light oil” produced when companies extract natural gas — into its overall oil production statistics, which some other oil producing countries do not do.

As Russia is gradually increasing liquefied natural gas production (LNG), the share of gas condensate it is producing is also growing. Gas condensate now accounts for around 6 percent of Russian oil production.

Novak told reporters that in winter, Russia traditionally produces more gas condensate as it is launching new gas fields in the freezing temperatures.

“We believe that gas condensate should not be taken into account (of overall oil production statistics), as this is an absolutely different area related to gas production and gas supplies,” he said.

Three sources told Reuters on Tuesday that Russia is unlikely to agree to deepen cuts in oil output at a meeting with fellow exporters next month, but could commit to extend existing curbs to support Saudi Arabia.

On Wednesday, Novak declined to say that Russia’s position would be at upcoming OPEC+ meeting. Reuters uses a conversion rate of 7.33 barrels per ton of oil.