Finance Minister Mohammad Safadi said Lebanon plans to raise $2 billion from international bond markets this year after borrowing costs of the most-indebted Arab country dropped to a record.
The ministry also plans to exchange existing debt valued at $3 billion with new bonds within the coming year, Safadi said in an interview. The possible sale of benchmark-size bonds depends on market conditions and the ministry has yet to appoint advisers, he said. Benchmark-size typically means a sale of at least $500 million.
Lebanon would use the proceeds to invest in electricity and gas infrastructure, Safadi said, as the government seeks to bolster economic growth. The country last tapped international bond investors in March, raising $600 million in 5 percent dollar bonds due October 2017 and increasing the size of its 6.6 percent bond due November 2026 by $350 million to $725 million.
“The market has shown us that we can have long maturities,” Safadi said in his Beirut office. “We are hoping to make use of that trust.”
The yield on the 6.6 percent dollar bonds rose one basis point, or 0.01 percentage point, today to 6.29 percent, six basis points above the low on March 23, data compiled by Bloomberg show. The premium investors demand to hold Lebanese debt over U.S. Treasuries rose five basis points this year to 389, lower than similarly rated countries such as Egypt and, Senegal and Ghana, JPMorgan Chase & Co. data show. Lebanon is rated B1 at Moody’s Investors Service, four levels below investment grade. Standard & Poor’s rates the country one level lower.
The performance of Lebanon’s bonds reflect strong demand from cash-rich domestic banks, making the country stand out as the closest thing to a safe haven during market turmoil, Sergey Dergachev, who helps manage $8.5 billion of emerging-market assets at Union Investment Privatfonds in Frankfurt, said May 14.
Deposits in Lebanese banks grew at an annualized rate of 8 percent this year, the same as in all of 2011, Central Bank Governor Riad Salameh said last week. Bank balance sheets rose an annual 11 percent in January, according to central bank data.
Lebanon’s economy grew more than 4.5 percent in 2011, three times faster than the International Monetary Fund had estimated, Safadi said, even after domestic and regional unrest brought growth to a halt in the first quarter. Lebanon is targeting growth of 3 percent this year, though the minister said the forecast may be conservative.
“It actually surprised us,” Safadi said, referring to last year’s expansion. “Retail recovered a lot, tourism recovered quite a bit and it gave a boost to the whole market.”
The government forecasts the budget deficit to stay little changed this year at 6.6 percent of gross domestic product because of increased public-sector wages. Safadi expects the debt-to-GDP ratio to remain unchanged at 135 percent.
The debt burden has prompted some international investors such as Aberdeen Asset Management to shun Lebanese debt at these levels. Safadi said pressure for higher yields also comes from the domestic market.
“Up till now we have managed to resist that pressure and our offerings are in line with what we think is fair to us and the market,” he said.
Lebanon’s banks have been reducing their exposure to government debt since 2009, Salameh, the central bank governor, said in an interview on May 11.
Safadi said the government plans to impose a 15 percent capital-gains tax and will raise import duties on items such as tobacco and alcohol to pay for higher wages. Most of the proceeds from the tax on capital gains will come from the real estate industry, he said.
“We are also increasing the tax threshold on some economic sectors that we feel won’t be affected,” he said, without giving details. “I am not financing these increases through the deficit, that’s the important message. I am financing all the increases through taxation.”
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