A group of Lebanon’s bondholders, including some of the world’s biggest investment funds, urged the new government on Tuesday to begin debt restructuring talks as soon as possible to help address the country’s grave financial crisis.
Lebanon suffered its first international debt default last March after years of political upheaval and economic mismanagement left it unable to service a more than 170 percent of GDP debt burden.
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Following a year of political deadlock, Lebanese leaders put together a new government led by Sunni Muslim tycoon Najib Mikati earlier this month, tasking him with getting an economy where three quarters of the population are now in poverty back on its feet.
The creditor group said in a statement it: “hopes and expects the new government will promote a speedy, transparent and equitable debt restructuring process.”
“Such a process will need the government to engage meaningfully with the International Monetary Fund as well as Lebanon’s international creditors and official sector partners,” it added.The group includes heavyweight funds Amundi, Ashmore, BlackRock, BlueBay, Fidelity, T-Rowe Price as well as a group of smaller hedge funds.
It estimates it holds a “blocking stake” of more than 25 percent in 40 percent of Lebanon’s various bond series, meaning it will be a critical player in any meaningful restructuring.
The majority of the remaining bonds are held by Lebanon’s domestic commercial banks or by its central bank, which bought $3 billion of the debt directly from a previous government back in 2019.
According to a draft policy program seen by Reuters last week, Mikati’s new government also wants to restart talks with the International Monetary Fund.
The last round of negotiations for IMF support broke down last year when Lebanon’s political elite and banks baulked at the scale of financial sector losses set out in a recovery plan.
The signals coming from the new government have helped Lebanon’s defaulted bonds rally more than 50 percent in recent days from around 12 cents in the dollar to 18-19 cents, which is still deeply distressed.