Qatar's 'token gesture' boosts Lebanese bonds -- briefly

U.S. dollar-denominated bonds issued by Lebanon's government rose this week after Qatar reportedly bought some of the debt, but the rally petered out as the market questioned whether it did much to help Lebanon's struggling economy.

By Davide Barbuscia

DUBAI, July 2 (Reuters) - U.S. dollar-denominated bonds issued by Lebanon's government rose this week after Qatar reportedly bought some of the debt, but the rally petered out as the market questioned whether it did much to help Lebanon's struggling economy.

Qatar said earlier this year it planned to buy $500 million of Beirut's dollar bonds to support the Lebanese economy. On Sunday, a Qatari official told Reuters Doha had bought "some of the bonds," without saying when or how much it had bought. Lebanon's finance minister said the Qatari move was "serious".

Lebanese bonds rose on Monday, with debt due in 2037 LB158623030= gaining over 3 cents to reach its highest value since May, but then fell again on Tuesday.

Analysts and market sources said it was hard to quantify the impact of the Qatari purchase and what it would mean for Lebanon's economic recovery. Lebanon has one of the world's highest ratios of debt to gross domestic product and is struggling to implement reforms needed to avoid a credit crunch.

"I would say that the phrase 'some bonds' is very vague, and suggests a token gesture rather than a genuine program of support for Lebanon," said Marcus Chenevix, analyst, MENA and global political research at TS Lombard.

The Qatari government declined to comment on the amount of Lebanese bonds purchased or on other details of the transaction.

NOTICEABLE IMPACT

It was also not clear whether and how buying Lebanese bonds in the market would translate into economic benefits.

"... Other than giving Lebanese bonds something of a bid, it would really make a difference only if they bought them from Lebanese residents (banks mainly) as that would bring dollars into Lebanon," said Richard Briggs, emerging markets strategist at London-based CreditSights

Just days after Qatar's investment pledge for Lebanon in January, Saudi Arabia, its regional rival, made a commitment to support Lebanon "all the way" to safeguard its stability.

"Serious support would have noticeable impacts on the (Lebanese) yield curve. Think of the example of Saudi support for Egypt in 2014 - when these things really happen, they are very noticeable," Chenevix said .

Qatar's announcement did give some respite to Lebanese debt investors after Moody's said last week that Lebanon is at risk of a debt rescheduling or steps that may constitute a default.

"This alone is very powerful. Especially today when there are geopolitical rivalries in the Middle East and North Africa region," said Sergey Dergachev, a manager of emerging-market corporate debt at Germany-based Union Investment.

(Additional reporting by Tom Arnold in London and Eric Knecht in Doha; editing by Larry King)

((Davide.Barbuscia@thomsonreuters.com; +971522604297; Reuters Messaging: davide.barbuscia.reuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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