Regulating the markets
Having been put on the backburner for the past five years, a draft law to regulate capital markets and insider trading was finally approved by Lebanon’s parliament early last month. Lebanese investors and brokers had urged previous governments to pass the law, a move which would allow for more transparency and activity on the Beirut Stock Exchange, according to Lebanese bankers. The law stipulates that an independent commission, dubbed “The National Council for Financial Markets in Lebanon”, headed by Central Bank Governor Riad Salameh, overlook and regulate both Lebanese market trading activities and participants. According to BDL, the regulatory agency will consist of seven members, five of which will be private entities, and will be an independent watchdog both in policies and functions, similar to the United States Securities and Exchange Commission. As of Executive going to print, the government had not set a timeframe for the implementation of the capital market law.
Kafalat demand shrinks
Loans extended to small and medium-sized companies under the guarantee of Kafalat Corporation dropped year-on-year 7.5 percent through July 2011, totaling $93.3 million for the first seven months of the year, down from $100.9 million during the same period a year earlier, according to figures released by the country’s state-sponsored credit guarantee scheme. The aggregate number of loan guarantees by Kafalat up until July 2011 reached 691, an 18.9 percent annual decrease from 852 a year earlier, indicating an enduring unfavorable business sentiment in the country due to domestic and regional instability. The average value per guarantee reached $134,992 for the same period, increasing by 14 percent from the previous year’s average of $118,413. The industry sector took the bulk of extended guarantees for the first seven months of 2011, constituting 41 percent of the total, followed closely by agriculture at 38.2 percent, tourism at 17.8 percent, specialized technologies at 1.7 percent and handicrafts at 1.3 percent.
Plastic pressure in Syria
Visa and MasterCard have blocked all credit cards issued by Syrian banks, in compliance with US sanctions imposed on the Syrian regime in the face of violence against protestors across the country. News of the ban first broke when Syrian visitors to the United Arab Emirates were sent SMS messages informing them that their credit cards were no longer valid. In response to an executive order issued on August 18 by the United States Treasury department prohibiting “the exportation, re-exportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of any services to Syria,” MasterCard started blocking all transactions originating in Syria and all MasterCard transactions on accounts issued in the country. Visa also announced the suspension of its payment card activity in Syria under the recent US sanctions, stating it is “required by law to comply with the US Department of the Treasury financial sanctions against Syria.” Meanwhile, Adib Mayala, governor of the central bank of Syria, announced that Syria stopped dealing with the US dollar and switched to the euro, a decision made effective as of August 23.
Banks feel the stress
Lebanon was one of 28 countries whose banking sector fell under the “low strength” category of the Fitch Ratings’ Banking System Indicator (BSI), the agency’s annual risk assessment survey that includes 86 banking systems in advanced and emerging economies. Excluding potential support from shareholders and governments, the BSI measures banking systems’ intrinsic strength and quality, along with their systemic weakness. On a scale of “A” to “E”, from high to low quality, Lebanon came under the “D” category. Lebanon was also among eight banking systems that the ratings agency judged to have a high level of potential vulnerability, according to Fitch’s Macro-Prudential Indicator (MPI), which tries to determine the build-up of stress in banking systems. Lebanon was the only country to witness a decline in its MPI classification.
A trio of tech kick-starts
Lebanese business incubator Berytech announced a $1.05 million investment in three technology startup companies at a conference in early August, raising the number of its equity participations to eight since May 2009. Headed by young entrepreneur Hind Hobeika, “ButterflEye”, a company that has engineered swimming goggles that measure swimmers’ heart rates in real time via infrared technology, was the first to receive $100,000 of funding. Berytech also poured $600,000 into “Yalla play”, an online gaming platform founded by young businessmen Mahmoud Hajo and Karim Saddik, whose notoriety comes from the three-dimensional card game tarneeb.com. Berytech’s third investment went into “Wext”, a provider of a multi-platform web-texting software offering an instant messaging service adaptable to all mobile phones and all types of Internet connections. The Beirut-based seed capital fund Berytech has some $6 million under management, offering financing and consultancy services to young entrepreneurs in the technology field.
DP World profits surge
DP World, a Dubai World subsidiary, reported a 298 percent increase in first-half profits to $741 million [AED2.72 billion], buoyed by strong volume growth and a one-time gain from the partial disposal of its Australian terminals. The ports operator brought in $460 million [AED1.69 billion] from the monetization of 75 percent of DP World’s Australia terminals through a strategic partnership with Citi Infrastructure Investors. The world’s third largest ports operator rode a wave of global economic recovery during the first part of the year, supported by growth in newly-penetrated emerging markets of Latin America and Africa. As a result, gross volumes grew 11 percent year-on-year driving up revenues 3 percent to $1.5 billion [AED5.5 billion]. DP World also increased its cash and bank balances by 63.5 percent to $4.1 billion [AED15.1 billion], most likely in preparation for settling $3 billion [AED11 billion] of debt which will mature in October 2012.
Tourists flashing more cash
Total tourist spending in Lebanon increased 13 percent for the first seven months of 2011, relative to the same period of the previous year, according to figures released by Global Blue, the VAT refund operator for international shoppers. The majority of spenders in Lebanon were Arabs, making up 56 percent of total tourist spending in the country. By country of origin, nationals from Saudi Arabia accounted for 21 percent of overall tourist expenditures in Lebanon, followed by United Arab Emirates tourists at 11 percent, Kuwaiti nationals at 10 percent, Syrian visitors at 8 percent and Egyptian travelers at 6 percent. Fashion and clothing captured around 70 percent of total tourist shopping, watches 10 percent, and perfumes and cosmetics 5 percent. Beirut shops attracted 84 percent of total visitor spending in Lebanon, while the Metn, Keserwan and Baabda areas took away 12 percent, 2 percent and 1 percent of total spending, respectively.
Capital Trust buys into First National Bank
A Capital Trust Group private equity fund, the Euromena II, has acquired a 7 percent stake in Lebanese First National Bank, a deal valued at some $20.5 million. The stake is equivalent to 930,000 shares of the bank, making the FNB share price around $22. Press releases by both parties said that the transaction was aimed primarily at boosting FNB’s already accelerating growth, as the bank recorded balance sheet and customer deposits in March 2011 of $2.55 billion and $2.1 billion, respectively, while loans and advances amounted to $681.2 million for the same period. The Euromena II fund was launched back in June 2008 by Capital Trust Group with an initial capital ranging between $200 million and $250 million, and was the third generation fund — Menavest and Euromena I funds being the first two — for the global investment group aimed at investing in high growth companies in the Middle East and North Africa region, while excluding real estate and infrastructure projects. The Euromena I fund, which was set up in 2006 with $63 million in capital, had acquired a stake in Intercontinental Bank of Lebanon in January 2008, contributing to the bank’s $20 million capital increase at the time.
