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Standard & Poor’s Rating Services has assigned its ‘B-‘ senior unsecured debt rating to the Republic of Lebanon’s (B-/Stable/C) proposed 5.5-year and eight-year eurobonds, which were launched as part of a debt-exchange offer.
The offer seeks to exchange, on a voluntary basis, maturities totaling US$2.2bn in 2005 with the new Eurobonds, which mature in 2010 and 2012.
“At a minimum, the exchange could lower the central government’s 2005 gross financing requirement by 2.5 percentage points of GDP,” says Standard & Poor’s credit analyst David Cooling.
Earlier eurobond issues amounting to US$1.2bn alleviated the rollover risks associated with the US$1.4bn eurobonds maturing in 2004.
The rating on the eurobonds is the same as the long-term sovereign credit ratings on Lebanon. The sovereign ratings reflect a crippling public sector debt burden, significant economic vulnerabilities, and the failure of policy outcomes to meet the Paris II objectives by a wide margin.
Nevertheless, Standard & Poor’s expects a decline in debt-servicing costs, reflecting still low global and domestic interest rates, concessional finance from the Paris II agreement, and below-market central-bank financing.
“A successful exchange would further moderate near-term financing risks, ahead of presidential elections later this year, and parliamentary elections in 2005,” adds Cooling.
The budget deficit is forecast to narrow to less than 10% of GDP in 2004. Further growth in revenues, reflecting the broadening of VAT, and higher nontax revenues, following the failure of the government’s privatisation programme, are expected to lift the central government primary surplus close to 4.7% of GDP in 2004, lowering the debt-to-GDP ratio to 178%.