According to a new report by Standard Chartered on Lebanon, the LEBAN curve is the strongest performer in the EM sovereign credit space YTD, driven by a pick-up in reform momentum earlier this year and the improving regional security situation. Their base case is an IMF programme and Eurobond restructuring by end-2026, but significant risks remain. They expect a recovery value of 22 cents on the dollar at a 12% exit yield, in their base case.  They say October performance has been choppy.  However, we remain optimistic that border tensions will ease, particularly given the recent Gaza ceasefire. This should allow the focus to turn back to economic reforms, helping Lebanon return to growth and debt sustainability after a multi-year crisis that included a 2020 debt default.  The passage of the Financial Gap Law – which addresses the gap between banks’ assets and liabilities and outlines a plan to repay depositors – is a crucial next step. They expect this to pave the way for a Staff-Level Agreement (SLA) with the IMF on a new funded programme before Lebanon’s May 2026 general elections, followed by a bond restructuring by end-2026. However, they see substantial risks to this timeline.  Their debt sustainability model covers a five-year period (2027-31) for Lebanon to achieve macro stabilisation. Their base case assumes average GDP growth of 7.0% during this period, a primary fiscal surplus of 2.0-2.5% of GDP, and LL depreciation of 5% per annum, driven by wide-ranging fiscal, monetary and external-sector reforms. To calculate their restructuring scenarios, they assess that debt needs to be reduced to a maximum of 95% of GDP by 2031 to achieve debt sustainability.  Assumptions on the depositor repayment plan are a key input to their debt sustainability model; they are based on our solvency and liquidity estimates for Banque du Liban (BdL) and commercial banks. The authorities have emphasised the need to prioritise small depositors (deposits under USD 100,000), who are estimated to comprise 88% of total deposit accounts and 18% of deposit value.  Given significant uncertainty on the timeline for political and economic reforms and Lebanon’s economic recovery, their debt sustainability model also includes bull and bear cases.  For the Bull case, they assume average GDP growth of 9.0% during the 2027-31 period, a primary fiscal surplus of 4.0% of GDP, and 1% LBP appreciation per annum, supported by deep and wide-ranging reforms. This scenario assumes that debt is reduced to a maximum of 80% of GDP by 2031. Deposits of up to US$ 500,000 are repaid (including with cash raised through the partial collateralisation of BdL gold reserves), and the government contributes USD 22.1bn to deposit repayment. Their bull case assumes a 25% haircut on PDI and a 50% haircut on principal, leading to recovery value of 36 cents on the dollar at a 12% exit yield.  In their Bear case scenario, they assume average GDP growth of 3.0% from 2027-31, a primary fiscal surplus of 0% of GDP, and 11% LBP depreciation per annum amid a stop-start reform process. They assume that deposits of up to USD 100,000 are repaid, with the government contributing US$ 12bn towards deposit repayment. Their bear case assumes an 82% haircut on PDI and principal, leading to a recovery of 11 cents on the dollar at a 12% exit yield. (ICE BEIRUT)

Fonte notizia: Bank Audi 20-26 Oct. 2025