The internal violence in Lebanon over the last week will not delay the $400 million Eurobond issue scheduled for the end of the week, according to Nicolas Photiades, head of economic research at Blominvest Bank.
This comes after a week of violent exchanges between the Lebanese army and Fatah al-Islam Palestinian militants in the Nahr al-Bared refugee camp. Both sides have maintained a fragile truce in since yesterday, and the main highway to the Syrian border has reopened. Lebanese government officials have indicated their suspicions that Fatah al-Islam has been encouraged and supported by Syria, as the UN considers establishing a tribunal to charge those suspected of killing former Lebanese prime minister Rafiq Hariri in 2005.
“Since last year, there has been a lot of motion for this bond issuance scheduled for this week and the government has no intention to delay this as far as I know,” Photiades told Emerging Markets today. BlomInvest, along with Citibank, is working with the government to place the debt.
Photiades was optimistic the ongoing violence would not negatively affect the issue, which is likely to be bought up primarily by local banks. “Local banks will enthusiastically buy it up as they rely on holding these bonds since they are high yielding; the margin of profit they get is a lot higher than the profits they make on certificates of deposit.”
The size of the issue is determined by the ongoing political paralysis, since Lebanese law caps the maximum issue without parliamentary approval at $400 million. The Lebanese parliament has not met since opposition protests began on December 1 2006, as Hizbollah and the Free Patriotic Movement of Michel Aoun demanded their participation in government.
Photiades argued that local investors and banks were to some degree desensitized by the political backdrop since the country was familiar to such problems but admitted recent events were bad signal for foreign investors: “The situation is affecting the enthusiasm of these investors, and the economy can only be buoyant if the army succeeds” in reestablishing order at the camp.
The Finance Ministry also announced yesterday that its overdue 2007 draft budget projects a deficit of 35.17%, down from 40.54% in 2006. But Photiades is unsure whether an already weakened government would be able to reconvene to approve this budget and to achieve consensus on privatization in the electricity and telecoms sectors. These measures and other economic reforms were requested by donors at the Paris III donor conference on January 25, 2007, as preconditions for the disbursement of part of $7.6 billion in funds pledged at the time.