“Akhbar al-Yawm” agency

Lebanon's Eurobond Dilemma: Financial Crisis, Political Influence and Future Uncertainty

Lebanon’s Debt and the Awaited Economic Plan

As Lebanese lawmakers debated the government’s policy statement, particularly its strategy to address the severe financial and economic crisis that has gripped the country since 2019, the Ministry of Finance announced last week that a supplement to the financial agency agreement for Eurobonds issued by the Lebanese Republic had been signed. This amendment suspends the state’s right to invoke the statute of limitations under New York law until March 9, 2028, in accordance with Cabinet Decision No. 30 dated January 7, 2025. The move comes just before the deadline for filing lawsuits against Lebanon in New York courts.

A senior economic and financial source, speaking to “Akhbar Al-Yawm” agency, highlighted that the Eurobond issue involves a hidden political dimension that has yet to fully emerge. He stressed that the matter is not merely about pricing and market dynamics but rather about understanding the structure of bondholders. He explained that every sovereign bond issuance worldwide includes contractual terms defining default scenarios and the expiration of legal rights. In Lebanon’s case, this period was initially set at five years, later extended by the previous government under Najib Mikati and now further prolonged by the current government led by Nawaf Salam. This extension grants bondholders additional time before resorting to legal action, potentially paving the way for alternative solutions that could prevent litigation against the state. While bondholders may or may not benefit from this measure, it nonetheless creates an opportunity that should not be overlooked.

When asked whether the Lebanese government should have repurchased its Eurobonds when their prices plummeted to around five cents per bond, the source noted that even if it had wished to do so, it would have faced significant obstacles. Two major investment funds: Ashmore (UK) and BlackRock (US), currently hold Lebanese Eurobonds worth approximately $17 billion out of a total of $33 billion, meaning they collectively control more than half of Lebanon’s outstanding debt instruments. These funds, among the most influential financial institutions globally, have substantial holdings across multiple sectors, controlling over 70% of major corporations worldwide. Their reluctance to sell Lebanese bonds may be driven by a variety of factors, including potential political interests, external pressures, or even an attempt to exert influence over Lebanon’s policy decisions. While the Lebanese state could theoretically purchase bonds from other holders, it would need to do so in small quantities and with discretion to avoid triggering a surge in bond prices.

The source added: A decision made in 2015 by then-Minister of Finance Ali Hassan Khalil, which allowed all bondholders to file lawsuits against the state. Before this decision, smaller bondholders lacked the legal standing to sue, and litigation against Lebanon could only proceed in costly legal jurisdictions such as New York, Paris, or London. Given the prohibitively high legal fees in these venues, the move effectively limited legal action to major financial players, raising questions about the underlying motives of the decision. Similarly, former Prime Minister Hassan Diab had initially assured banks that Lebanon would not default on its Eurobond obligations and would meet the March 2020 payment deadline. However, he later reversed this position, leaving unanswered questions regarding the reasons for this shift.

Despite the government’s repeated assurances that it will resolve Lebanon’s financial crisis, it has yet to disclose a clear roadmap. Prime Minister Salam’s recent statements have been notably diplomatic, giving the impression that certain details remain deliberately withheld. The source emphasized that Lebanon’s financial turmoil is intrinsically linked to its sovereign debt, which stood at $92 billion before the crisis. Due to accumulating interest, this figure has now surged to $106 billion, with approximately 85% of it classified as domestic debt, primarily sourced from depositors’ funds.

As the country awaits further clarification, attention now turns to when Prime Minister Salam and his economic team will present their concrete plan to tackle the financial crisis and its broader implications. Only then will the full picture begin to emerge.