Lebanon Facing Tough Debt Restructuring, But Bonds Cheap

Lebanon faces a complex and difficult debt restructuring that could take up to two years, Morgan Stanley has estimated, though the recent slump in its bonds has left them looking cheap even if the harshest scenarios play out, Reuters reported. Lebanon, one of the most indebted countries in the world, suspended payments on all $31.3 billion of its international ‘eurobonds’ this month, declaring that it could no longer repay them. In analysis published on Tuesday, Morgan Stanley said debt relief of 100%-125% of Lebanon’s annual economic output would be needed, though it would be far from simple. The legal terms of its bonds make it vulnerable to Argentina-style ‘holdout’ investors derailing the process, while shifting the burden to domestic banks is not an option because they themselves have helped soak up the debt and would need recapitalising. Raiding bank deposits of savers and firms as Cyprus did at the height of its crisis would be politically problematic, and getting support from the IMF or elsewhere in the Middle East may also be difficult in the current circumstances. Read more