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  The Republic of Lebanon acting through the Ministry of Finance ("MoF") intends to raise funds through a Special Purpose Vehicle ("SPV") domiciled in the Cayman Islands.

The SPV will issue notes that will be secured by the future flows generated from the duties on imported tobacco products charged by the MoF on tobacco products and paid by the International Tobacco companies.

Lebanon has imported an average $137 MM per annum of tobacco products and generated $177 MM per annum in tariff revenues between 1999 and 2002.

The main exporters of tobacco, Phillip Morris (A2 (Moody's) / A (S&P) (1) / A (Fitch)), BAT (A2 (Moody's) / A (S&P) / A (Fitch)), Japan Tobacco (Aa3 (Moody's) / AA-(S&P)), and Atladis Group (A3 (Moody's) / A-(S&P) / A-(Fitch)) to Lebanon are estimated to collectively generate over 90% of the total tariff revenues.

The proposed future flow transaction specifically incorporates structural enhancements to pierce the sovereign ceiling

1- The Régie imports finished tobacco products into Lebanon by placing orders with the International Tobacco Companies (PM, BAT, Atladis Group, etc.) on a FOB basis.
2- In order to clear the goods upon arrival, the Régie pays the Customs Office the assessed import duties in Lebanes pounds.
3- The Régie pays the International Tobacco Companies for the invoiced goods (i.e., the tobacco purchase price) as per the agreed payment terms.
4- The Régie sells the imported tobacco products to its licensed distributors in Lebanon.

Legal Status
The Régie operates as a government-owned company, which effectively has the monopoly for the importation of tobacco into Lebanon
Current Primary Functions
- To import
- To clear imported tobacco products from customs and store them in its warehouses
- To authorize international tobacco and tombac companies interested in marketing their products on the Lebanese market
- To issue licenses to "chief distributors"
- To sell tobacco and tombac products to chide distributors
- To sell on the local market or export local production
- Manufacture of local cigarettes
- Production of tobacco
Tobacco companies retain the responsibilities to market their product
Total Revenues for all
Tobacco Products

Tariff revenues have shown a steady increase since 1997 with a CAGR(2) of 8.5% between 1997 and 2001
The estimated drop in 2002 is due to the introduction of VAT

Customs and Excise Taxes

The Government has followed a strategy of maximizing tariff revenues subject to international trade agreements
The setting of customs and excise taxes takes into account
- Maximising revenues
- Ensuring no leakage of imports through customs
- International trade agreements

Customs and Excise Taxes

Stable revenue distribution over the year
No significant seasonalities either on a 3 year or 5 year basis

Total Import Units of

Demand for tobacco products is generally inelastic
- Total tariff rates were increased 120% in April 1999. however, cigarette volumes dropped by only 31% resulting in total tariff revenues increasing by 50% relative to 1998

Customs and Excise Taxes

The flat revenues between 1999 and 2000 are not due to increase in tariffs but to general economic conditions
- Tariffs in 1999 increases early in April
Total revenues for the first three months of 1999 were $29,401,504 compared to a 3month average of $42,340,455 for the remaining year, or a 44% increase

CIF Price of Imported Units

Average price per unite of imported cigarettes to Lebanon (CIF) from 1992 to year-to-sate 2002 is $172.71 and the average number of Cigarette Units(1) is 81,615
The price is determined by the suppliers and follows international supply and demand trends and the specifics of the Lebanese market demand

Stable Revenue Stream From Imports
Largest International Tobacco Manufactures

P3% of total customs and excise revenues are generated from tobacco products imported from well-rated international companies:
- Philip Morris - rated A2 (Moody's) / A (S&P) / A (Fitch)
- BAT - rated A2 (Moody's) / A (S&P) / A (Fitch)
- Japan Tobacco - rated Aa3 (Moody's) / AA-(S&P)
- Altadis Group - rated A3 (Moody's) / A- (S&P) / A (Fitch)