Lebanon plans Eurobond issue in weeks

Lebanon is planning a new Eurobond issue in the coming weeks valued at up to $500 million to help service existing debt and subsidise a state-owned power company, the caretaker finance minister said on Wednesday.

"It's going to be a limited issue: limited by what the government is authorised to issue without new legislation. There will be one soon not exceeding $500 mln," Mohammad Chatah told Reuters in an interview.

Lebanon, one of the most heavily indebted states in the world, completed a debt swap in March for around $2.3 billion of foreign currency paper maturing this year.

"Yields on Lebanese foreign currency Eurobonds have declined in the markets substantially and there is demand for Lebanese foreign currency paper," Chatah said. "We want to satisfy the market."

Strong economic growth has helped reduce Lebanon's ratio of debt to gross domestic product to 153 percent in June from around 180 percent three years ago. The country's gross debt stands at $48 bn.

"If we are at 150 to 152 percent by the end of the year, we should aim at a continued drop in that ratio," Chatah said. "It should be possible to aim at yet another significant drop."

The International Monetary Fund (IMF) has said Lebanon's economy could grow by around 7 percent this year. "This will be the third year in a row that we have growth above 7 percent," Chatah said.

"It's a catch-up process. We are still an $8,000 per capita country. I believe that we can be, with our endowment of skills and other advantages, at a higher level."

Good growth continues next year

Pitched into crises by assassinations, war and political instability since 2005, Lebanon has enjoyed relative calm for more than a year. The country held a peaceful parliamentary election in June, though the failure to form a new government since then has underlined the potential for setbacks in its fragile politics.

A summit last week grouping the leaders of Saudi Arabia and Syria, states with great influence in Lebanon, raised expectations of an imminent breakthrough in the formation of the new government.

"The domestic political scene has improved and most analysts see no interest for any major party to push the country to any domestic conflict," Chatah said.

"So yes, I think next year we should continue to have good growth. If the government succeeds in putting in place a credible policy plan, then we may see a qualitative increase in foreign direct investment ... the kind of investment that will create high-paying jobs," he said.

Faced by divisions and successive political crises, the outgoing government of Prime Minister Fouad Siniora failed to implement major economic reforms, chief among them privatisation in the power and telecoms sectors.

International donors which had tied aid to progress in such reforms have in turn withheld grants and loans. They pledged some $7.6 bn to Lebanon at a Paris conference in 2007.

"We still have about $500 mln that's waiting for us to unlock," Chatah said, in reference to a chunk of funds pledged as budgetary support at the Paris conference.

Of $3.5 bn pledged as project support at the same conference, Lebanon had so far only received $214 mln. Some $1.2 bn was in the pipeline. Much of the project support was pledged to help reform the power sector, subsidies for which are one major strain on government finances.

"The fact is nothing much has happened in this current government. We are yet to have an implementation plan for the power sector," Chatah said.