UPDATE 5-Lebanon speaker Berri calls for Eurobond restructuring

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(Adds Lebanon issuing RFP according to source, paragraphs 19, 24)

BEIRUT, Feb 19 (Reuters) – Lebanese Parliament Speaker Nabih Berri said on Wednesday that debt restructuring was the best solution for looming Eurobond maturities, while the banking association said foreign investors had shown a readiness to negotiate a debt rescheduling.

Grappling with a crippling financial crisis, heavily indebted Lebanon must decide what to do about its debt repayments, including a $1.2 billion Eurobond due on March 9.

Berri’s comments, the first by a senior official urging restructuring, came on the eve of talks between Lebanon and IMF experts who will advise on how to tackle the crisis.

As the crisis deepens, hitting ordinary Lebanese hard, there is no sign of foreign aid. Western and Gulf Arab states that helped in the past have made clear that any support hinges on Beirut implementing long-delayed reforms to address root causes such as state corruption and bad governance.

Lebanon’s dollar-denominated bonds maturing next month plunged 17 cents on the dollar, their biggest daily decline on record.

Lebanon has $2.5 billion of foreign currency debt maturing this year.

“When it comes to the Eurobond maturities, he sees restructuring the debt as the ideal solution,” Ali Bazzi, an MP in Berri’s parliamentary bloc, cited him as saying.

Berri, an ally of the powerful Hezbollah, is among Lebanon’s most influential figures and was named the finance minister in Prime Minister Hassan Diab’s new cabinet.

Banking association chief Salim Sfeir said that if the government was heading towards a debt rescheduling, this should happen in an orderly way through negotiations with bondholders, “especially investment funds abroad that have so far shown readiness to negotiate”.

Lebanese banks hold the bulk of the sovereign debt, including $14 billion in Eurobonds.

Sfeir spoke after meeting Diab, whose cabinet was formed with support of Berri’s Shi’ite Amal Movement, the Iran-backed Hezbollah and President Michel Aoun’s Free Patriotic Movement. Saad al-Hariri, a traditional ally of the West and the Sunni-led Gulf Arab states, has stayed out of the cabinet.

On Tuesday, the IMF said a team will visit from Feb. 20-23 to meet authorities on economic challenges and provide broad technical advice.

Lebanon has not requested IMF financial assistance. Berri has said the Lebanese would not be able to bear IMF terms.

OUT OF TIME

A senior political source said the main parties that back Diab’s government were against paying maturing foreign currency debt, including the March 9 bond, and instead want negotiations to agree a rescheduling.

But the process was moving “very slowly”, the source said.

A senior banker said: “They think they have the luxury of time. They don’t.”

Lebanon needs one authority to agree and implement a plan but was not confident, the banker said.

“But right now we have three powers meeting, talking and not deciding,” he added, referring to Diab, Berri and Aoun.

Lebanon has issued requests for proposals to seven firms to provide financial advice including on options regarding its 2020 Eurobond maturities, a source familiar with the matter told Reuters on Wednesday.

Senior bankers say some Lebanese banks face additional financial strains after borrowing against their Eurobond holdings.

Emerging markets specialist Ashmore has accumulated a holding of more than 25% of the foreign currency debt, including a quarter of the March 9 bond, according to financial sources citing Bloomberg data up to the end of 2019.

“A disorderly default would have a very negative impact on banks, on their equity and therefore on deposits and the economy overall,” said Nassib Ghobrial, Byblos Bank’s chief economist.

The banking association last week said that debt restructuring requires time and the short period before March 9 does not allow for preparation and “competent handling”.

Lebanon is inquiring into the sale of Eurobonds by local banks to foreign investors though the practice is not illegal, a judicial source said on Wednesday. (Reporting by Ellen Francis, Tom Perry, Laila Bassam and Samia Nakhoul in Beirut and Tom Arnold in London; Writing by Tom Perry; Editing by Mike Harrison, Hugh Lawson and David Goodman)

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