Syria unrest sparks Lebanon banking downgrade
Moody’s downgraded its outlook on Lebanon’s banking system to “negative” from “stable” due to weak economic growth and regional political unrest. Moody’s is concerned by the political uncertainty in Syria, as well as the exposure of local banks to countries such as Jordan and Egypt with slower economic growth or political turmoil. The ratings agency expects the profitability of Lebanese banks to come under pressure in 2012 and also predicts the trend of non-performing loan improvement that spanned from 2006 to 2010 to be reversed. Moody’s is also worried by the banking system’s heavy exposure to Lebanon’s sovereign debt, estimated at more than $50 billion, rendering it highly geared to the performance of the government. Moody’s highlighted the solid liquidity and the resilient deposit base as alleviating the downside risks.
New UAE company law to raise international investor interest
The UAE has approved a draft company law that will raise the limit on foreign ownership above the current limit of 49 percent. The current law obliges foreigners who wish to establish a business outside a free zone to find a local partner to hold a majority stake. The new law will also introduce unified accounting standards for all businesses and mandatory corporate governance principles for joint stock and limited liability companies, and modify the requirements for share offerings in local capital markets to encourage listings by private companies. If passed, the changes will be the biggest in the country in 30 years, though no date has been set for the final approval of the law. “We think this will encourage the establishment of more new companies in Dubai, because it makes the regulations and business environment more attractive for foreign investors,” said Hamad Buamim, director general of the Dubai Chamber of Commerce and Industry.
Solidere and BLOM listed on S&P Arab Index
Standard & Poor’s Indices partnered with the Arab Federation of Exchanges (AFE) to launch the S&P AFE 40, designed to measure the performance of leading companies from the pan-Arab region. The S&P AFE 40 is made up of the 40 largest stocks, measured by float-adjusted market capitalization, from Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Tunisia and the United Arab Emirates. Each stock must have at least $50 million in value traded over the last 12 months, there can be no more than 10 stocks per country and at least one stock from each country must be included. “We are building a benchmark now for funds to invest in the region when the economy improves and oil prices pick up,” said Fadi Khalaf, the secretary general of the AFE. For Lebanon, Solidere and BLOM Bank have been included in the index.
UAE and Qatar stuck at frontier market status
MSCI, Morgan Stanley’s influential index compiler, postponed for the third time their decision on whether to upgrade the United Arab Emirates and Qatar to emerging markets from frontier markets status, a disappointment for local investors expecting an increase in volumes traded on the back of the upgrade. Both countries will be reviewed again in June 2012. The MSCI Emerging Market index is used as a benchmark by fund managers and the markets of countries that are upgraded can benefit from billions of dollars in extra liquidity. With respect to the UAE, MSCI cited investor concern over the newly established Delivery versus Payment (DvP), a security settlement system. The DvP system was a key requirement by the MSCI for the countries to be considered for an upgrade. With respect to Qatar, MSCI cited concern over foreign ownership limit, which currently stands at 25 percent.
Lebanese companies growing fast
Twelve Lebanese companies were among Arabia 500’s fastest growing companies in the MENA region, Pakistan and Turkey. Semsom Restaurant, ranked 27th, is the fastest expanding Lebanese company, enjoying 218 percent growth between 2008 and 2010. Jordan leads the high-growth companies in the Levant, followed by Lebanon. The average growth for the 12 companies identified was 83 percent between 2008 and 2010, and the average number of employees stood at 89. The survey also identifies two start-ups to keep an eye on: ecoSolutions, a consulting firm specialized in developing solutions to build green buildings, and Cleartag, a web and graphic design firm. It also concludes that within the Levant region, Lebanon has the highest percentage of fastest-growing companies owned by women.
BDL’s $4 billion treasury buy
Banque du Liban (BDL), Lebanon’s central bank, bought more than $4 billion of treasury bills in the first three quarters of 2011 to keep interest rates at their current levels, according to BDL Governor Riad Salameh. Commercial banks favored the more liquid certificates of deposits over T-bills due to the political instability, according to the Association of Banks in Lebanon. This led the BDL to intervene, with its share of local public debt increasing from 27 percent as of the end of December 2010 to 32 percent as of the end of September 2011. Salameh recently highlighted that lending to the private sector by Lebanese commercial banks has exceeded their investments in treasury bills so far this year.
Banque Saudi Fransi exiting BEMO
Banque Saudi Fransi wants to sell its 10 percent stake in Banque BEMO, a Lebanese commercial bank, and its 27 percent stake in BEMO’s affiliate in Syria, Banque BEMO Saudi Fransi Syria. Its decision is based on concern regarding the increasing financial risks in Syria and follows sanctions imposed on the country by the Arab League. The directors representing Banque Saudi Fransi immediately submitted their resignation from the board of both BEMO Saudi Fransi Syria and BEMO Lebanon. “We received offers. But it is too early to make any commitment to anyone as long as the regulatory authorities in Lebanon and Syria do not approve selling these shares yet,” said Samih Saadeh, general manager of BEMO. Banque BEMO reported profits of $7 million for the first nine months of 2011, a 2 percent rise compared to the same period last year. Banque BEMO Saudi Fransi was launched in January 2004 and with 36 branches in Syria is considered one of the country’s leading banks.
UN to return Libya’s booty
The United Nations Security Council lifted its sanctions on assets of Libya’s central bank and its subsidiary, Libya Foreign Bank. The council in March froze Libya’s assets abroad, estimated at $150 billion, to put pressure on the government of Muammar Qadhafi. Once the sanctions had been lifted the United States unfroze more than $30 billion in Libyan government assets but not those held by Qadhafi’s family and members of his former government. The United Kingdom is also unfreezing more than $10 billion. By late November, only $18 billion, a fraction of the assets held abroad, had been released, with UN officials claiming only $3 billion reached Tripoli due to legal problems. The move by the UN Security Council was cited as being a move to assist the new government in rebuilding Libya after eight months of civil war.
