(Bloomberg) -- Lebanese authorities will be reluctant to announce a default on debt payments until a functioning government is formed, pushing back any plans for a bond restructuring to later this year, according to Oxford Economics.
Investors can reap a 13% return by buying Lebanon’s dollar-denominated note due March 9, London-based strategist Nafez Zouk said in an emailed note. While there’s an 85% probability those bonds will be repaid at maturity, dwindling foreign-currency reserves mean a default may still be announced in the second half of 2020, Zouk said.
The chances of Lebanon repaying its $2.1 billion bond maturing in April 2021 are “slim,” he said.
The recommendation comes after a record slump in the March bond last week, fueled by reports local lenders have been selling the instruments to avoid participating in a central bank-initiated voluntary debt swap.
Oxford Economics is betting paralysis in Lebanon’s leadership will prompt the central bank and the caretaker government to delay any decision on a debt restructuring beyond the March maturity. While President Michel Aoun appointed former education minister Hassan Diab to form a government last month, progress has been slow with protesters demanding a cabinet of experts.
“The likely strategy for now is to buy time,” Oxford Economics’s Zouk said. “A political vacuum is preventing the coalescence around a credible and comprehensive economic plan, which is needed to crystallize a foreign financing envelope, within which debt restructuring can take place.”
Rudderless since Prime Minister Saad Hariri resigned in late October, the Middle Eastern country faces a debt load that’s climbed to more than 150% of economic output. Its financial system is crumbling as the flow of remittances that has kept the economy afloat slows.
To contact the reporter on this story: Marton Eder in Budapest at firstname.lastname@example.org
To contact the editors responsible for this story: Alex Nicholson at email@example.com, Paul Wallace
For more articles like this, please visit us at bloomberg.com
Subscribe now to stay ahead with the most trusted business news source.
©2020 Bloomberg L.P.