Published on: 23/03/2020
Investors in credit insurance on Lebanon are set to receive a payout after a binding ruling from a CDS committee.
Up to roughly $400 million of contracts could pay after the heavily indebted nation failed to honor a $1.2 billion Eurobond due earlier this month. The exact value will be decided at an auction to settle the credit swaps, which will take place at a later date.
The Middle Eastern country is struggling to cope with dwindling foreign-currency reserves and double-digit inflation amid its worst financial crisis in decades. A new government backed by Hezbollah, the Iranian-linked group, is seeking to draw up an economic program that cuts debt and overhauls the country’s banking industry.
Lebanon wants to reduce its debt to between 60% and 80% of gross domestic product from 170% as part of the restructuring efforts, Economy Minister Raoul Nehme told Bloomberg earlier this month. The nation has $30 billion of international bonds.
Lebanon joins a series of sovereigns that have defaulted in recent years including Venezuela, Puerto Rico and Ukraine.
The contracts, used to bet on a borrower failing to keep up with its debts, are the second-most expensive in the world, only surpassed by Argentina. It costs the equivalent of about 15,000 basis points to insure Lebanon’s debt against default for five years, compared with a roughly 400 basis-point average for the Markit CDX Emerging Markets index.
Source: Bloomberg