Beirut Stock Exchange trades thin
Trading activity on the Beirut Stock Exchange (BSE) is dire so far this year. The total volume traded stood at 64.2 million shares as of the end of September, a 54 percent year-on-year decrease. Turnover stood at $467 million, down a whopping 72 percent from September 2010, and the BSE’s market capitalization decreased 14 percent to reach $10.6 billion. While the Lebanese equity market is being hit, the spreads on the country’s credit default swaps (CDS) — effectively the market’s perception of a county’s default risk — have been outperforming global peers. Spreads on Lebanon’s CDS have widened just 22 percent in the third quarter and stood at 429.7 basis points according to CMA Datavision, a CDS and bond-pricing firm. This is a much better performance than the widening of spreads in Denmark (216 percent), The Netherlands (176 percent), Italy (165 percent) and Austria (160 percent). Only the United States, Venezuela and Ireland performed better than Lebanon in the third quarter.
Merrill Lynch and Barclays recommend Lebanese Eurobonds
Merrill Lynch upgraded its rating on Lebanon’s external debt to “Overweight” from “Market Weight” within its emerging markets portfolio, placing Lebanon in the same category as Abu Dhabi, Qatar, Jordan, South Africa, the Philippines and Uruguay. The upgrade is driven by the low beta correlation of Lebanese Eurobonds to the international markets, due largely to an increased risk aversion. Merrill Lynch also raised Lebanon’s allocation in its portfolio to 3.9 percent from 3.5 percent and highlighted that Lebanon’s external debt returns were the only ones in positive territory among the 42 emerging economies in the portfolio. Barclays Capital maintained its “Market Weight” recommendation on Lebanese Eurobonds in its emerging markets credit portfolio but raised Lebanon’s allocation to 2.8 from 2.4 percent.
Tier one capital ratio to hit 12 percent
Lebanon plans to raise its tier one capital ratio, the core measure of a bank’s financial strength, to 12 percent within seven years, more than required by BASEL III, a new global regulatory standard on bank capital adequacy. Basel III requires banks to hold a tier one capital of 6 percent, up from 4 percent, by 2015. According to Riad Salameh, governor of Banque du Liban (BDL), Lebanon’s central bank, the new capital requirement imposed on Lebanese banks would place them “among the highest in terms of capital adequacy.” BDL will soon issue a directive requesting a 10 percent target for tier one capital within four years, rising to 12 percent three years later. During meetings at the International Monetary Fund, Salameh indicated that he does not expect Lebanese banks, which have an insignificant exposure to European sovereign debt, to be affected by the European crisis. He added that current regulations encourage solvency and liquidity in line with Basel III.
Gulf investors drop bid for Zain Saudi
Kingdom Holding, own- ed by Saudi billionaire Prince al-Waleed bin Talal, and Bahrain Telecommunications (Batelco) dropped their $950 million bid to buy a 25 percent stake in Zain Saudi, the kingdom’s third-largest mobile phone company which is owned by Zain, Kuwait’s biggest mobile phone company. The failure of the deal follows the collapse of two previous attempts to acquire a 46 percent stake in Zain: one in March for $12 billion by the United Arab Emirates’ operator Etisalat, and one in September 2009 for $13.7 billion by India’s Vavasi Group and Malaysian billionaire Syed Mokhtar al-Bukhary. Zain Saudi’s third quarter results showed accumulated losses of $2.5 billion, pushing the company to focus on capital restructuring. Zain Saudi recently appointed Khalid al-Omar as chief executive officer after the resignation of Saad al-Barrak. As of October 13, Zain Saudi’s stock price was down 27 percent on the year.
Commercial bank assets up
The total assets of Lebanese commercial banks stood at $138.1 billion as of the end of August 2011, a 10 percent year-on-year increase. Private sector deposits also increased 10 percent year-on-year and stood at $113 billion. Deposits in Lebanese lira stood at $37.8 billion, down 1.7 percent year-on-year while deposits in foreign currencies rose 17 percent to reach $75.2 billion. The dollarization rate of deposits rose to 66.6 percent, up from 62.6 percent a year ago. Loans to the private sector increased 17 percent year-on-year and amounted to $39 billion, of which $5.6 billion went to the non-resident private sector.
Emirates NBD takes over Dubai Bank
Emirates NBD, the largest lender in the United Arab Emirates, has taken over the struggling Islamic lender Dubai Bank for an undisclosed amount on the orders of Sheikh Mohammed bin Rashid al-Maktoum, the ruler of Dubai. The Dubai government, which holds a 55.6 percent stake in Emirates NBD, had acquired Dubai Bank in May after it was hit hard by the financial crisis. Before the takeover it was owned by both Dubai Holding, with a 70 percent stake, and Emaar properties, with a 30 percent stake. In an emailed statement, the government’s media office said the takeover was “in line with Dubai government efforts to enhance the banking sector in the emirate.”
Iraqi Telecommunications IPO delayed
Iraq’s three telecommunications operators, Korek Telecom, Zain Iraq and Asiacell, missed their planned deadline for floating on the Iraqi Stock Exchange (ISX). The companies were expected to be listed by the end of August 2011 but will not be penalized for missing their targets and now seem unlikely to launch an initial public offering (IPO) until the middle of 2012. The operators are first required to change from private companies to shareholding firms, which is expected to take a month to complete. The Iraqi exchange’s market capitalization stands at just $4 billion, with the average daily volume traded just $2 million — yet, technically, it is one of the world’s best performing markets this year. Taha Abdulsalam, chief executive of the ISX, expects the current market capitalization to double when operators list on the Iraqi bourse.
Qatar investing in gold and Luxembourg banks
Qatar Holding, a subsidiary of the gulf state’s sovereign wealth fund, the Qatar Investment Authority (QIA), is planning to create a standalone investment vehicle called “Qatar Gold” to invest in gold companies. It began by acquiring a 10 percent stake in British mining company European Goldfields at a cost of $775 million, of which $600 million will finance mine development in Greece. The Qatari royal family is also buying two banks in Luxembourg previously owned by troubled Belgian banks, Dexia and KBC. Precision Capital, a Qatari-backed firm based in Luxembourg, agreed to buy KBC’s private banking unit, KBL European Private Bankers, for $1.4 billion. Following the break up of Dexia by the French and Belgian governments, the Qatari royal family agreed to acquire Dexia’s troubled unit in Luxembourg, Dexia Banque Internationale Luxembourg (BIL), for an undisclosed amount. Qatar National Bank, which is 50 percent owned by the QIA, is in talks to buy the Turkish division of Dexia, Denizbank, in a deal that could potentially be worth $6 billion.
