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Domestic bond designed to manage Lebanon’s debt

Issuer: Republic of LebanonAmount: $750 millionLaunched: August 2 2002Bookrunner: Morgan Stanley

This four-year deal, handled entirely by Morgan Stanley, marks Lebanon's latest effort to manage its worrisome public debt: it also provoked a hissy fit among rival debt market investment bankers.

It refinanced $650 million of local US dollar Contractor bonds and raised an additional $100 million off the Republic's MTN programme. Contractor bonds were launched by the government in the 1990s to settle large arrears to construction companies incurred through the country's heavy post-war reconstruction spending.

The issue pays a semi-annual coupon of 10.5% - a good price for the sovereign, as some market participants had expected a level between 13% and 14%. The deal went exclusively to Lebanese accounts, mainly to banks, although there was some retail participation.

Much to the annoyance of rival bankers, Morgan Stanley executed the deal for no fee, citing relationship reasons. Rival bankers speculate that the relationship reason might be a forthcoming telecoms mandate. Morgan Stanley denies that it has any such mandate in the bag, although it confirms that it is looking at several securitization deals.

Rival bankers also argued that the deal should not be included in league tables because it was an exchange and because it was done for no fee.

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