Bonds News

UPDATE 1-Moody's puts Lebanon's Caa1 rating under review for downgrade

(Recasts with Moody’s statement)

BEIRUT, Oct 1 (Reuters) - Credit ratings agency Moody’s put Lebanon’s Caa1 rating under review for downgrade on Tuesday, saying this reflected recent significant tightening in external financial conditions and a reversal in bank deposit inflows.

“Anticipated external financial assistance has not yet been forthcoming and capital market access at sustainable rates remains elusive,” Moody’s investors service said.

It said the “government’s greater reliance on the (central bank’s) drawdown on foreign exchange reserves to meet upcoming foreign-currency bond maturities risks destabilising the (central bank’s) ability to sustain the currency peg”.

Lebanon has a $1.5 billion Eurobond maturity in November. Its currency has been pegged to the U.S. dollar at its current level for more than two decades.

Moody’s downgraded Lebanon’s rating to Caa1 in January.

Moody’s said the review may extend beyond the usual 90 days and would allow the agency to “take stock of the government’s progress in adopting the 2020 budget as planned before the end of the year”.

It would also allow it to take stock of the extent to which that “unlocks confidence-enhancing external support packages” via CEDRE - a reference to billions of dollars of international finance pledged to Lebanon last year, conditional on reforms.

Lebanon, with one of the heaviest public debt burdens in the world, has suffered from years of low economic growth. Impetus to enact long-delayed reforms has grown as capital inflows to the country from abroad have also slowed down.

Moody’s said the review would also take stock of whether Lebanon could secure financial support from traditional Gulf Arab allies “which in turn would ease immediate liquidity risks and be conducive to a broader growth recovery over the longer term”.

Reflecting the increased pressure on Lebanon’s finances, Fitch ratings agency recently downgraded it deep into junk territory. Rival ratings agency S&P Global kept Lebanon’s credit rating at B-/B but warned that it could be lowered, saying it considered its foreign exchange reserves sufficient to service government debt in the “near term”. (Writing by Tom Perry Editing by Andrew Heavens and Peter Graff)