Page 9 - MEOG Week 15

MEOG FinAnCe & inVestment MEOG
Lebanon’s creditors divided over draft financial restructuring plan
LeBAnon
lEBANON’S international and local creditors are at odds over a draft plan on tackling the coun- try’s crippling financial crisis.
Some international holders of lebanon’s more than $30bn Eurobonds are broadly sup- portive of the proposal, which estimates leb- anon will need external financing of $10-15bn over the next five years, and say it can act as a blueprint to seek International Monetary Fund (IMF) financial support.
But a letter from investment bank Houlihan lokey – adviser to the Association of Banks in lebanon (ABl) – to investment bank lazard, the lebanese government’s adviser, expressed concerns about the plan, its impact on the bank- ing system and its proposal to impose a financial burden on depositors.
“lebanese commercial banks are the single largest constituency of Eurobond holders, which should be used to the advantage of the govern- ment and country as a whole to come up with a credible restructuring plan that ensures that the heavy debt burden is addressed while protect- ing the health of the banking sector and, more
importantly, depositor monies,” stated the letter, seen by Reuters.
The plan, which is still being discussed by the Cabinet, was drawn up in the wake of leb- anon defaulting on its hefty foreign currency debt last month. A coronavirus (COVID-19) lockdown has compounded economic prob- lems, which include a weakening currency and capital controls that have denied savers access to dollar savings. At a media briefing on the gov- ernment’s economic plan on Thursday, Finance Ministry advisers described it as subject to revi- sion as the government holds talks with various stakeholders.
Figures such as the $83.2bn in banking sec- tor losses could change amid negotiations with bondholders that will determine the discount taken by foreign and local holders of debt.
Adviser Alain Biffani said the plan did not mean the government would necessarily resort to an IMF programme, but targets on things such as the deficit and exchange rate provided a strong starting point and were largely in line with the fund’s requirements.™
PoLiCy
China prepares to close oil deal in Iraq
irAq
lAST week’s news that China Petroleum Engi- neering & Construction Corp. (CPECC) has won a $203.5mn engineering contract to treat sour gas at the super-giant Majnoon oilfield in Iraq underlines how China is recovering from its coronavirus (COVID-19) quarantine and its ambitions in the Middle East.
The project, due to be completed within 29 months, aims to build a sour gas treatment facility with a daily capacity of 4.39mn cubic metres, according to a statement issued by China National Petroleum Corp. (CNPC), the parent company of CPECC.
Iraq’s Majnoon oilfield, operated by state-run Basrah Oil Co, is now producing around 240,000 barrels per day and plans to boost output to 450,000 bpd by 2021.
With the US’ focus increasingly on dealing with the coronavirus outbreak at home, Beijing has good reason to believe that Iraq is open to its increased interest. This is about continuing to develop oil and gas field opportunities in geopo- litically ultra-sensitive areas, such as Iraq, on the basis of rolling contracts for specific work under- taken by companies that are not so prominent
on the US’ radar, like CPECC. This method is also being used by Russia, and its focus right now is Iraq and Iran, two countries that are right in the centre of the Middle East and vital to both China’s ‘One Belt, One Road’ multi-generational dominance strategy and to Russia’s ongoing attempt to play a major role in the entire Middle East.
Majnoon is a key focus in Iraq because of the high amount of oil that has always been present there. Iraqi politicians have offered China a very favourable deal for the development of the the super-giant field. Specifically, the terms of the deal are that China would obtain a 25-year con- tract but one that would officially start two years after the signing date. This would allow China to recoup more profits on average per year and to commit lower upfront investment.
Also enormously beneficial for Beijing is that the methodology for working out per barrel pay- ments to it would be the higher – the Chinese would choose – of either the mean average of the 18-month spot price for crude oil produced, or the past six months. Additionally, China would receive a discount of at least 10% for at least five
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