The volatile situation in Syria and the sudden war on Gaza made Lebanon’s last Eurobond issue less appealing to Arab and foreign investors despite the Finance Ministry’s success in securing $1.525 billion of this bond. 
A source at the Finance Ministry told The Daily Star Wednesday that Lebanese banks snapped up most of these bonds, denying claims that the delicate situation in the country and pressure on the government were among the reasons behind the hesitation of Arab investors to subscribe.
“Nearly 46 percent of this issue, or $701 million, has been exchanged with maturing bonds while the rest was sold to the Lebanese banks,” the source said on condition of anonymity.
The Finance Ministry initially asked Lebanese banks through the co-managers of the bond issue whether they would consider raising the Eurobonds to $2 billion, but most of the lenders preferred to exchange part of the issue and the rest was bought with cash.
The source added that the Finance Ministry secured $1.525 billion and that $701 million was exchanged while $825 million came in cash.
“We are short by $175 million from the target, but nevertheless the issue is sufficient to meet the Finance Ministry’s needs for the time being,” the source said.
The Eurobonds were issued in three tranches: the first is due on Nov. 18 with an interest rate of 5.15 percent; the second tranche matures in January 2023 with an interest rate of 6 percent; and the last one matures in November 2027 with an interest rate of 6.25 percent.
Lebanon’s sovereign Eurobonds have usually lured many Arab, European and U.S. investment firms due to their relatively high yield.
Foreign investors used to buy up to 30 percent of Lebanese Eurobonds a few years ago, but this trend has changed to some extent in view of the uncertain political future of many countries in the Middle East.
The crisis in Syria is seen as one of the main causes behind the reluctance of most Arab investors to subscribe to Lebanese Eurobonds. 
The source stressed that once the tense situation in the region simmers down Lebanon won’t have any problem resuming sales of its Eurobonds to Arab and foreign investors.
The Finance Ministry has no plans in the foreseeable future to tap the local and international markets for more Eurobonds.
The fall in interest rates in the local and international markets has helped the Lebanese government to reduce the cost of debt servicing over the past five years, but the low yields on these bonds have apparently prompted Lebanese banks to look for new investment avenues to boost their revenues and maintain their profits.
Alain Wanna, head of the group financial markets division at Byblos Bank which co-managed the last Eurobond issue along with BLOM Bank and Credit Suisse, told The Daily Star that foreign investment in the last issue was low relative to the previous years.
“The Finance Ministry wanted to do a voluntary exchange for the Eurobonds which mature in 2013 before the parliamentary elections take place,” Wanna said.
Wanna noted that the law authorizes the Finance Ministry to issue Eurobonds over and above the maturing bonds.
He added that growth in customer deposits, which is close to 7 percent this year, is mainly in Lebanese pounds, which carries a higher yield than the U.S. dollar.
Some banking sources told The Daily Star that banks were not enthusiastic to use the bulk of their dollar cash reserves to finance Lebanon’s public debt.
“We prefer to keep the dollar cash for the time being until the picture in Lebanon and the region becomes clearer. Most investors are more concerned about the unfolding events in Syria and the Gaza Strip than the situation in Lebanon ,” a banker argued.
Wanna dismissed the notion that banks are not eager to buy more Eurobonds. “Any banker who buys 10-year Treasury bills with a yield of 8.25 won’t be scared to buy Eurobonds.”