S&P lowers Lebanon to 'selective default', says restructuring could be lengthy

S&P Global Ratings has downgraded Lebanon's foreign currency ratings to 'selective default' and warned that talks on restructuring of the debt could be complicated and drawn out.
 
Citing critically low foreign currency reserves, Lebanon said on Saturday it could not meet upcoming debt payments, setting the stage for a default on a Eurobond that was due on March 9.
 
As a result, S&P said it was lowering Lebanon's foreign currency ratings to 'selective default' from 'CC/C'. It said it would most likely remove the ratings from 'selective default' once any debt exchange or restructuring agreement between Lebanon and its creditors became effective.
 
But it said restructuring negotiations could be complicated because it did not expect funding from the IMF that could provide a policy anchor and encourage support from other international donors.
 
Another complicating factor, it said, was that one investment fund held more than 25% of the issue maturing in March, giving it the ability to block restructuring terms it may consider unfavorable.
 
Emerging markets specialist Ashmore Group has accumulated a holding of more than 25% of the March 9 bond, according to financial sources.
 
Thirdly, S&P said domestic banks and the central bank held more than 60% of the outstanding eurobonds.
 
"Depending on the severity of the restructuring terms, haircuts on nominal payments could have ripple effects across the domestic financial system, including depositors, and the economy," it said.