“Akhbar al-Yawm” agency

Lebanon’s Missed Opportunity: Eurobond Prices Surge After Years of Inaction

Failure to act on low bond prices cost Lebanon billions, while private investors seized the opportunity

On March 9, 2020, former Prime Minister Hassan Diab announced Lebanon’s decision to suspend the repayment of its outstanding debts, citing that "the debt has become larger than Lebanon’s ability to bear and beyond the capacity of the Lebanese to pay its interest, as reserves have reached a critical and dangerous level". At the time, Diab stated that his government would seek to restructure the country’s debt in line with its national interest through negotiations.

However, since that decision, which many economic experts described as “wrong”, no tangible progress has been made. No negotiations took place, nor was any restructuring achieved. Consequently, the value of Lebanon’s Eurobonds dropped below seven cents. This would have been an ideal opportunity for the government to buy back its debt at a significantly reduced cost, yet no action was taken. As a result, Lebanon lost the chance to generate billions in potential gains. 

Now, with the war in Gaza de-escalating and Lebanon electing a new president, Eurobond prices have rebounded significantly. They climbed even more with the formation of a new government last Saturday. According to "Tradeweb" data, Lebanon’s dollar-denominated bonds surged by as much as 1.1 cents, reaching approximately 18.3 cents across most maturities, marking the highest level since March 2020. 

Experts anticipate that bond prices could rise further, possibly reaching 23 cents in the coming months, particularly if the new government moves forward with critical economic reforms. 

Recognizing market trends early, former Minister Kamil Abou Sleiman suggested in September 2022 that Lebanon should repurchase Eurobonds when they were at historically low levels. He explained that despite the sharp decline in the remaining funds of depositors in the Bank of Lebanon (BDL), the latter or the state could offer to buy Eurobond bonds.

It’s worth noting that Diab's government itself spent large sums to stabilize the exchange rate and implement support policies without any clear benefit, so it would have been better not to miss the opportunity.

Sources following the file pointed out via "Akhbar Al-Yawm" that the Eurobond issue has remained unresolved for over three years, where it was expected that the state would buy its bonds in consecutive installments, each time at a rate of 10%. When the price of eurobonds was around 7 cents, it included the accumulated interest, but in the case of restructuring the bonds, the accumulated interest must be taken into consideration.

According to the sources, if 10% of the bonds had been purchased three years ago, their price would have been around $230 million. However, with bond prices now exceeding 18 cents, the cost of repurchasing the same portion has surged to around $594 million, excluding accrued interest. They added that the price could climb to 23 cents during a restructuring process, and at that point, interest rates would also go up, leading to the 10% being worth around $760 million.  

The sources further noted that Lebanon could have discreetly executed these transactions years ago without media attention or the need for approval from the Public Procurement Authority. 

In this context, the same sources reveal that there are several wealthy investors who have bought these bonds, potentially with the intention of selling them at a later stage. Legally, there is no restriction preventing private investors from acquiring these bonds, however, "it is a shame for Lebanon not to benefit from the low prices”.