Moody’s downgrades Lebanon, cites default risk

A worker walks past food items displayed for sale inside a supermarket in Beirut, Lebanon November 5, 2019. (Reuters)
Updated 05 November 2019

Moody’s downgrades Lebanon, cites default risk

  • Lebanon’s issuer rating, which was lowered from Caa1, remained under review for downgrade
  • The price of Lebanon’s dollar eurobonds fell by more than 2 cents in the dollar

BEIRUT: Moody’s Investors Service on Tuesday downgraded Lebanon’s rating to Caa2, citing the increased likelihood of a debt rescheduling it would classify as a default, following protests that toppled the government and shook investor confidence.
Lebanon’s issuer rating, which was lowered from Caa1, remained under review for downgrade, Moody’s said. Moody’s classifies Caa ratings as very high credit risk.
“In the absence of rapid and significant policy change, a rapidly deteriorating balance of payments and deposit outflows will bring GDP growth to or below zero, further stoking social discontent, undermining debt sustainability and increasingly threatening the viability of the peg,” the ratings agency said.
Several weeks of protests have led to the resignation of Prime Minister Saad Al-Hariri, stalling the chances of reforms to the 2020 budget and further draining Lebanon’s already depleted foreign exchange reserves.
In a sign of Lebanon’s increasing financial stress, the cost of insuring its debt has touched record levels in recent weeks and eurobond yields have risen to distressed levels. On Tuesday, the price of Lebanon’s dollar eurobonds fell by more than 2 cents in the dollar, according to Tradeweb data.
Moody’s said it expected the central bank’s usable foreign exchange buffer of about $5-10 billion will “likely be consumed” by the government’s forthcoming external debt service payments estimated at $6.5 billion this year and next, including a $1.5 billion maturity on Nov. 28.
The rating and review for further downgrade “reflect the increasing likelihood of a debt rescheduling or other credit negative liability management exercise that could result in private sector holders of government liabilities suffering significant losses,” Moody’s said.
That would constitute a default under Moody’s definition, it added.
Lebanon has never defaulted on its external debt, despite frequent bouts of political and security instability.
The central bank’s holdings of government securities implied Lebanon had options for debt management in the near-term that would limit losses for the private sector in the event of a default, Moody’s said.
Options such as debt maturity extension or debt cancelation involving the central bank’s debt holdings amounting to 50% of GDP could help as long as the currency’s peg to the US dollar remained, the agency said.
“However, those options are diminishing the longer Lebanon’s economic and political crisis persists,” it added.


Creditors take action against Al Jaber in decade-long saga

Updated 23 September 2020

Creditors take action against Al Jaber in decade-long saga

  • The downturn in the Gulf construction sector has triggered a number of corporate restructurings as companies are forced to reschedule debt, raise fresh borrowing or enter insolvency protection

DUBAI: Creditors have started to enforce claims against Abu Dhabi-based Al Jaber Group, in a dispute triggered by a construction downturn in the UAE more than a decade ago.

Al Jaber, a contractor with interests across a range of sectors, has struggled since building up debt in the wake of a UAE real estate crisis and began talks with creditors in 2011.

Abu Dhabi Commercial Bank, which is working as restructuring and security agent, said in a document dated Sept. 21 which was seen by Reuters, that it had instructions from the majority of creditors to proceed with claims against Al Jaber.

A representative for Al Jaber did not immediately respond to a request or comment. ADCB declined to comment.

The move follows delays in restructuring agreements, under which Al Jaber was to appoint a new board and sell companies and assets such as the Shangri-La hotels in Dubai and Abu Dhabi.

In exchange, creditors had agreed to extend the maturity of a 5.9 billion dirhams ($1.61 billion) loan, cut interest rates, and provide additional revolving debt.

The initial enforcement action now being pursued by creditors includes the “acceleration and demand for payment of amounts outstanding” under the previously agreed debt restructuring, a source familiar with the matter said.

Enforcement will also allow creditors to claim against Al Jaber’s chairman under a 4.5 billion dirham loan to the company.

Several UAE companies have sought to extend debt maturities or agree better terms in recent years to avoid defaults, after an oil price crash hit energy services and construction.

The coronavirus crisis has added to the strain and Arabtec Holding, the UAE’s biggest listed contractor, this week will discuss options including dissolution after the pandemic hit projects and led to additional costs.

Meanwhile, Dubai-listed construction firm Drake & Scull is working to reach an agreement with its creditors in an out-of-court process.