Global investment bank Goldman Sachs indicated that Lebanon is experiencing an encouraging momentum towards reforms in the past two months with the election of President Joseph Aoun after a presidential vacuum of more than two years, the formation of new government following about 33 months of a Cabinet in a caretaker capacity, and after the newly-appointed Minister of Finance expressed his willingness to seek a new program with the International Monetary Fund (IMF) and move ahead with reforms. It pointed out that the prices of Lebanese Eurobonds, which have been in default since March 2020, have reflected these developments as well as the ceasefire in place since last November, as they are nearing 20 cents on the US dollar currently, which has tripled their value in the past five months.  As such, it pointed out that bond prices are quickly approaching its base-case estimate of the recovery value of Lebanon’s bonds of about 25 cents on the dollar. It considered that this estimate is supported by the recent political and geopolitical positive news, but it noted that it is also based on demanding macroeconomic assumptions, which include a significant pickup in growth and fiscal consolidation, a well-managed devaluation of the currency, large external support to finance rebuilding costs, and a successful restructuring of the banking system and of the defaulted Eurobonds. It estimated that downside risks to these assumptions would reduce the recovery value estimates to between 12 cents on the dollar and 19 cents per dollar. It added that the recent constructive developments and the upside on the timing and implementation of further reforms could unlock the recovery value beyond 20 cents and towards 30 cents and higher. But it considered that bond pricing near 20 cents on the dollar and higher would require a continuation of the current geopolitical stability and, especially, the actual implementation of concrete reforms that would help the country recover from its financial crisis.  Last November, Goldman Sachs developed a ''Base-Case Restructuring'' scenario, which implies a required haircut of 75% on the outstanding debt stock or a write-off of $35bn on Lebanon's outstanding external debt and a coupon rate of 8%, and estimated that the recovery value on the restructured debt is likely to range between 15.6 cents on the dollar and 32.9 cents per dollar and to average 24.6 cents per dollar, assuming a coupon rate of 8% on the restructured debt and depending on the exit yield. It considered that a five-year bond discounted at an 8% exit yield will imply a recovery value of 31.9 cents per dollar, while it estimated that a 10-year bond discounted at a 12% exit yield will imply a recovery value of 24.6 cents per dollar. Also, it considered that a 20-year bond discounted at a 16% exit yield will imply a recovery value of 15.6 cents on the dollar.  Also, it estimated that a likely time for the Eurobond’s restructuring under this scenario would be the second half of 2026 based on the following sequence of events: a permanent end to the conflict with Israel, the election of a new president and the formation of a new government, the completion of the IMF’s prior actions as per the Staff Level Agreement of April 2022, along with parallel discussion with bondholders starting in the first quarter of 2025, and the final approval of an IMF program.  In addition, it expected the recovery value on the restructured debt at 36.4 cents per dollar in case of greater external support, at 32.4 cents a dollar if the exchange rate of the Lebanese pound appreciates, at 29.5 cents per dollar in case of fiscal consolidation, at 26.5 cents a dollar if the cost of the banking sector’s restructuring is lower than the anticipated $2.9bn, at 24.6 cents per dollar in a base-casescenario, at 19.7 cents a dollar in case of a higher-than-anticipated cost of the banking system’s restructuring, at 17.7 cents per dollar if the currency depreciates further, at 16.7 cents a dollar in case of weaker economic growth, and at 12.3 cents per dollar if the Eurobonds restructuring is delayed to 2030.   (ICE BEIRUT)

Fonte notizia: Byblos Bank, February 12-17, 2025