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A Mediterranean affair

$164.7 million of European Investment Bank financing extended to the Lebanese private sector

by Livia Murray

June 11 saw €121 million ($164.7 million) of European Investment Bank (EIB) financing extended to the Lebanese private sector in four transactions.

Two of these came via loans worth €45 million ($61.3 million) apiece to Byblos Bank and Fransabank. The other two were equity investments, one of €11 million ($15 million) in First National Bank and the other €20 million ($27.2 million) in regional private equity fund EuroMena III. 

“It seemed important to us in this difficult period to show that the Lebanese financial sector and the Lebanese economy represent a good investment opportunity,” says Philippe de Fontaine Vive, the vice president of the EIB.

The loans to the local banks are to be channeled into the economy at a multiplier effect of two to support lending to SMEs, according to de Fontaine Vive. “We request the bank to lend double of what we are lending to the bank. So it’s a legal commitment of at least two, but nothing prevents these banks from being even more efficient,” he says. The SMEs to be invested in would be held to certain good governance principles, overseen by the EIB, according to de Fontaine Vive.

With a 12-year maturity granted to the commercial banks, they are also expected on their side to lend for periods up to 12 years, according to the vice president — maturities he claims are hard to find on today’s market. As far as interest rates go, de Fontaine Vive says these have not yet been set and will partly depend on the terms set between the banks and the SMEs.

EIB’s relationship with Lebanon

The financing falls under a long-standing EIB policy of promoting the EU’s policy objectives overseas under its Facility for Euro-Mediterranean Investment and Partnership (FEMIP). According to the EIB’s website, these objectives are encouraging the modernization and liberalization of economies of the EU’s partner countries in the Mediterranean.

FEMIP’s financing to Lebanon reached €740 million ($1 billion) between 2002 (the date of its establishment) and 2012, according to a 2013 Byblos Bank report. This is equivalent to 5.2 percent of its investments in the Mediterranean region, which totaled €14.2 billion ($19.3 billion) in the same period, in Morocco, Egypt, Tunisia, Syria, Israel, Lebanon, Algeria, Jordan and the West Bank and Gaza, the report said.

Some of the agreements signed most recently represent just another facet of these institutions’ long relationship with the EIB. Byblos Bank received two prior loans from the EIB — $60 million in 2005 and $87 million in 2007, according to a Byblos Bank press release.

Similarly, this is the third equity investment the EIB makes in an equity fund managed by the Capital Trust Group. The €20 million ($27 million) investment in EuroMena III was preceded by $17 million in EuroMena II and $12 million in the first EuroMena fund.

Rare, however, is the FNB investment, which according to de Fontaine Vive is the EIB’s first significant equity stake in the capital of a Lebanese bank. Like the other financial institution, FNB intends to establish a long-lasting relationship. “In this transaction what we value more is the strategic partnership,” says Rami El Nimer, chair and general manager of FNB. The EIB’s financing will play into FNB’s capital increase of $40 million, $25 million of which will be coming from existing shareholders, according to Nimer.

The perks of international money

Funding from foreign financial institutions certainly has its perks. In EuroMena’s case, their relationship with the EIB and the reputation they’ve gained from it has facilitated subsequent investment. With their third EuroMena fund raising $100 million so far, the $27.2 million EIB investment was the largest investment among a pool of international financial institutions, which invested a combined total of $56 million in EuroMena III. Other investors in this pool included the DEG (Deutsche Investitions- und Entwicklungsgesellschaft), the International Finance Corporation and Électricité de France.

“The EIB, DEG and IFC are as important because they are development financial institutions that do a very thorough due diligence before they invest in a fund. They impose on a fund very tough, thorough controls because it’s public money. And they don’t mess with public money,” says Romen Mathieu, managing director of the EuroMena fund at the Capital Trust Group.

Having already raised $100 million for their third fund, Mathieu was confident that having such investors under their belt would facilitate meeting their closing target between $150 million and $200 million: “When you have such investors with you, other investors come along.”

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Livia Murray

Livia covers business, finance and economic policy for Executive.

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