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Lebanon’s Finance Ministry to offer $1.5 billion in Eurobonds

October 8, 2012 The Daily Star
Lebanon’s Finance Ministry will tap the local market again to raise close to $1.5 billion in Eurobonds to finance the public debt amid indication that local lenders will snap up most of the new issue.

Most Lebanese banks received letters from the Central Bank stating that the Finance Ministry intends to issue up to $1.5 billion in Eurobonds.

The letter said that part of this issue will mature in 2028.

The yields on the new issue will be determined by the co-managers of the Eurobonds, who will then approach the banks to see whether they are interested in subscribing to these bonds.

“We just received a letter from the Central Bank stating that the Lebanese government is interested in raising close to $2 billion in Eurobonds. Of course we will study this very carefully before taking a final decision,” chairman of Byblos Bank Francois Bassil told The Daily Star earlier.

He added that the new issue was part of the government’s efforts to swap existing Eurobonds.

“This is not a new debt. The government seems keen to replace the existing bonds in dollar-denominated currencies,” Bassil said.

He added that banks will naturally subscribe to this issue to swap it with bonds that mature this year.

Joe Sarrouh, the adviser to the chairman of Fransabank, told The Daily Star that this is not the first time the Lebanese government borrows money for a period of 15 years.

“The Lebanese government last time sold the Eurobonds to subscribers at very low yield,” Sarrouh said.

Last week, Central Bank Governor Riad Salameh said in Kuwait that the Lebanese government may issue a dollar-denominated sovereign bond this month. “The government and the Finance Ministry are thinking of going to the market again, maybe in October, with an issue of the Republic of Lebanon in dollars,” Salameh said.

He would not comment on details of the possible bond issue, saying it was up to the government to announce it.

The government previously issued dollar bonds in March, including $600 million due in 2017, paying 5 percent, and the addition of $350 million to a previous issue of 2026 bonds, paying 6.375 percent.

Finance Minister Mohammad Safadi has reiterated that the government will not raise its exposure to the public debt and will swap the maturing bonds with new ones even at lower rates due to the decline in interest rates in the international markets.

Lebanese banks rely heavily on Treasury bills and Eurobonds to maintain profits, although the returns on these bonds have fallen in the international markets over the past six years.

The drop in the yields on T-bills and Eurobonds was one reason behind the fall in profits of the banking sector this year. The banking sector’s consolidated net profits fell 5.13 percent in 2011 to $1.74 billion, down from $1.84 billion in the year 2010. The drop is partly attributed to the 6.56 percent rise in total operating expenses to $2.38 billion in the year 2011, which outweighed the 1.3 percent sluggish increase in net operating income to $4.47 billion.

Bassil told The Daily Star earlier that the profits of the entire banking sector at the end of 2012 would fall by 25 percent. Most banks have seen their profits either fall or record flat results in the first six months of 2012.
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