New seeds for economic growth were engineered last month in Beirut when the European Investment Bank and Byblos Bank Group announced that their collaboration had progressed another step towards establishing an investment company, which will take private equity stakes in small and medium enterprises in Lebanon and three other Middle Eastern countries—Syria, Jordan and Egypt.
The joint venture of Byblos and the EIB’s Facility for Euro-Mediterranean Investment and Partnership (FEMIP) involves EIB capital participation of up to 7.5 million euros ($9.8 million) in the private equity firm which plans to formally commence operations in the middle of this year.
According to Byblos Bank, the investment company by name of Byblos Ventures will initially work with a capital of $20 million, but the partners have made provisions to be able to expand this amount to up to $50 million if the project sprouts with full vigor.
Private equity projects taking off Private equity projects are a hot issue in the Middle East. A new lobby group for this financial method said last month that private equity funds in the GCC countries last year attracted investor interest to the tune of raising $10 billion in 2006, an almost 76% increase in new funding over 2005. As recently as three years ago, private equity funds in the GCC had to get by on managing only a handful of billions in investments, but this volume has grown to $18 billion last year and is poised to increase by further leaps and bounds, said the Gulf Venture Capital Association in January.
In this part of the region, Byblos Ventures is the third recent private equity project announced in Lebanon and the second that is funded in part by the EIB.
The first launch party happened last spring when Capital Trust and EIB teamed up for the EuroMena Fund, aiming at investments in companies in the Levant and North Africa that are ready to make the step from national to regional players and require funding for expansion. EuroMena was promoted at the time as EuroMena 1, to be followed by EuroMena 2. However, the fund’s growth seems to have been more cautious in its early phase as its managers told Executive at the Byblos Ventures press conference that they have so far entered into two participations ranging in size “between $3 and $15 million.”
The third new private equity fund that just started approaching hopeful investors is the Building Block Fund, which centers on companies with a Lebanese angle and new enterprises with emphasis on technology and services companies. It is a brainchild of Bader Lebanon, an initiative of young business personalities, and aims at raising a capital of $20 million, half of that before the end of March.
Bullish on Lebanon
Speaking to media at the signing of the partnership agreement with Byblos, EIB vice president Philippe de Fontaine Vive was all praise and cheer for Lebanon. The work on creating the private equity project with Byblos Bank Group took 18 months but was “not at all” delayed by the conflict between Israel and Hizbullah last summer and recent internal political disputes between Lebanon’s cabinet and opposition groups, de Fontaine Vive told Executive. “Lebanon will recover with Paris III and we have full optimism that this is the time to invest in Lebanon,” he said.
Byblos Ventures is based on a two-year-old ongoing technical collaboration for which Byblos, according to de Fontaine Vive, volunteered as the only Lebanese bank at that time. An earlier fruit of the collaboration was a $60 million global loan agreement, signed in February 2006.
Under a complex structure for creation and management of Byblos Ventures, the Lebanese banking group will take responsibility for supplying 50% of the capital in the new firm while FEMIP is committed to a 25% stake. Both will adjust their actual dollar contributions in the equity of Byblos Ventures to reflect the percentage stakes agreed upon. This would set the practical ceiling for the project at closer to $40 million, based on a statement by de Fontaine Vive that the capital participation authorized by EIB is capped at 7.5 million euros.
According to Paul Chucrallah, assistant general manager for Byblos Invest Bank in charge of managing Byblos Ventures, the structure to establish and manage Byblos Ventures will entail the creation of another new subsidiary in Byblos Group, which will be named Byblos Management and run Byblos Ventures on the legal basis of minimal stake holding.
As a time-limited project, Byblos Ventures has an investment horizon of ten years, maximum twelve years, divided into two stages of activity. These stages—that can partly overlap—are an investment phase of three to five years and an exit phase for the remainder of the project’s lifespan.
Expanding Byblos Management’s mandate
Byblos Management, however, could pursue projects beyond this first private equity undertaking, Chucrallah told Executive. He characterized the transfer of knowledge and the development of advanced professional skills as benefits from the collaboration between the Lebanese bank and the EIB that are even more important than their financial cooperation.
Based on this knowledge transfer and skill development, Byblos Ventures will be able to participate in the equity of traditionally family-owned firms in the region on an unprecedented level and function as accelerator for the growth of invested companies, Chucrallah said.
In other practical manners, investments into individual companies will vary between $1-2 million in size and no single investment will exceed 10% of Byblos Ventures’ equity base. Per sector, investments will be limited to 40% of the investment company’s equity, and its private equity participations are intended to focus 50% on Lebanon but this rule is flexible.
Byblos Ventures is geared to help in the development of companies by contributing both funding and expertise and Chucrallah said the project team could start engineering equity participations even before the formal launch later this year. No one could have appeared happier about this than an exuberant Joseph Raidy, the chairman of Beirut-based Raidy Printing Group.
“Byblos Ventures will help industrialists in two ways, through bringing money and through improving the structure of companies, because these are very professional people,” Raidy told Executive, adding that his company will be perhaps the first to benefit from the equity participation. He called the arrival of Byblos Ventures, “a great step for Lebanon.”