Executive talks to Georges Zard Abou Jaoudé, chairman and general manager of Lebanese Canadian Bank, about the bank’s IPO plans, foreign expansion, capital increases and everything else in between.
E Can you give us some background about when you started thinking about an IPO and how you prepared yourself and your team?
To accompany growth and go regional with the highest solvency in the sector, and moreover, to be compliant with Basel II, you need to increase equity. IPO is the healthiest way to increase equity.
An IPO means exposure to other parties, in other words, to the public. The consequences include total transparency and disclosing every single decision. This in turn introduces a new culture. I and all the executives at all levels are convinced that our officers need to embrace this culture in order to be well-prepared for the public. I think we are now, after two years of hard work and preparation, ready for an IPO.
E Was there a particular date when you made the concrete decision to go ahead?
We are actually in the process of preparing all the ingredients for a successful IPO, while not forgetting the mood of the market, especially the Middle Eastern one.
E The number of IPOs on Arab stock markets has been held partly responsible for slides in market values across the region. IPOs need liquidity. Would you list only in Beirut?
Liquidity is important in any stock market. I feel that it exists extensively in the region because of the money factor, especially the price of oil. Maybe there was an excess of IPOs simultaneously in the Gulf region. On the other hand, in Lebanon the night is still young and the bourse still needs further developments and listings.
Deposits are over 3.5 times the size of our GDR. In other words, liquidity is not a problem and more IPOs in Lebanon are healthy for the economy. We would list first in Lebanon and then potentially in London or Luxembourg.
E Not Dubai?
Perhaps at a later stage.
E What level of capital increase did you perform in Q1 2006?
We had two issues involving capital increase: one common share issue and one preferred share issue, which is in the process of being finalized. This would represent an increase of almost 50% in capital from about $140 million to $210 million. The idea is now to float 20% of the bank in GDRs. This is merely to increase the capital to reach our target of around $350 million by the end of 2006. This is very ambitious and I would be very happy with anything near that mark.
E What kind of Gulf share would you foresee in the IPO?
Difficult to say now, but we certainly would do road shows in the Gulf through the lead manager.
E And the lead manager is?
It will be one of three major banks. It is likely to be BNP Paribas, although nothing is signed yet.
E This increased equity also means increased responsibility, and in turn higher profits and greater activity. Would you agree that LCB is one of the most aggressive banks in the Lebanese market?
We may be the most aggressive bank, keeping in mind that we hold one of the highest solvencies and one of the highest liquidities. In other words, we are the most aggressive and at the same time very conservative. That is very unusual. For the last four years, we achieved the highest return on equity and the highest growth rate.
We are confident that as we were successful in planning the past five years and achieved our goals, we could do the same for the coming years. The only difference is that beyond a certain volume, this kind of incremental growth cannot be sustained organically. Instead we have to look at mergers or acquisitions – with a preference for the latter – with a view to consolidating by acquiring banks abroad.
E In this context, then, was it a blow that BLC was acquired by someone who bid just a little bit more than you?
Sometimes conservatism does not pay. In a bid, you have to look at all the aspects – even though our Saudi and Emirati partners agreed on $240 million, we bid only $211 million and ended up as the second highest bidder. I wish BLC had stayed under a Lebanese umbrella.
E Do you have a name at the top of your list?
We do have a name, but I am not even allowed to think it out loud.
E Have you been talking to them?
Extremely gently.
E Do you see market opportunities for LCB in Gulf countries?
Yes, especially in the Emirates and Qatar. It is not easy, but we hope to get through in one way or another. In the meantime we are serving our clients in the Gulf from Lebanon.
E Have you set your eyes on other markets?
We have been in Algeria and are in the process of finalizing the majority share in an Algerian bank. Now we have our sights set on other markets, which is another reason why we need the equity increase.
E So once you have taken care of the IPO, how quickly would you move into these markets in North Africa and elsewhere?
We might be known for being very aggressive in the Lebanese market, but we have to be more careful when we go abroad. We have to test the ground and respect the restrictions imposed there. I know that my colleagues have great momentum, energy and know-how, so I think we could go in quickly but cautiously.
E Do you see possible synergies with other Lebanese banks going into the same market?
I will be happy to see other Lebanese banks sharing the same market. The more they know about the market, the easier it would be to syndicate with them.
E Here in Lebanon you have been concentrating more on retail and retail lending for some time.
In fact, we deal with corporate middle market and retail and have one of the best services on the trade finance level. Our goal is to enhance the capital market and private banking services. We feel that Lebanon lacks investment banks and this is something we are interested in.
E You have talked about a joint venture with another bank. Would that target the Lebanese market in particular?
No, it will serve the Lebanese diaspora, Arab investors and western equity. The idea of serving the diaspora came out of a need for survival. Frankly speaking, I feel that the strength of Lebanon stems from its emigrants. If you look at the country’s financial statistics, you see that every year we have a commercial deficit of around $5 billion, whereas the balance of payments is positive. This comes chiefly from the repatriation of income, so despite a huge debt-to-GDP ratio, Lebanon still lives relatively well and we have some degree of growth.
Every year a huge amount of money pours into Lebanon from outside, so if I want to be different, and serve those who are serving Lebanon, then I should go after their business. This is why our motto is to serve the Lebanese diaspora. We see major potential here.
Another opportunity we see is to strengthen the ties between the diaspora and the country itself. We intend to launch a website called Roots, which will help to galvanize the connection between the two.
E In your opinion, where is the diaspora most active?
I think that most of the first and second waves of emigrants have lost their Lebanese roots, but more recent departures, especially those in North and Central Africa, Arab countries, Canada and even Europe, still have close ties. They send a lot of money back to Lebanon. There are 250,000 in Canada, concentrated in Quebec where we have opened a representative office. There are probably at least 1-2 million in the Arab countries, and Lebanese continue to leave for the Gulf. Overall, there is a potential market of not less than 3-4 million people, which is almost equal to the resident domestic population.
E Back in Lebanon, are you relying on political stability? Would it be devastating if the proposed Beirut conference were postponed or cancelled?
Hopefully someone will inject some reason into our politicians. Fostering a healthy economy is the most important thing.
E Even if the private sector prepared a healthy economy, it still seems as if some kind of force is trying to destroy it.
This is why I am begging for some wisdom. There is a lot of available money, a surplus of petrodollars, and most of it is flying straight over our heads in Lebanon. It won’t last forever. If we could catch some while we can, it would help stabilize the debt situation enormously. We have lost many opportunities in the past. Let’s hope not to miss this one.
E On another level, you are active in non-financial areas. You give speeches on the importance of banking standards and participate in conferences, and LCB allocates time and resources to other events. How does this fit into your strategy? Is it a way to raise visibility?
We are trying to give back society what it offers us. We discovered that the more you give to society and the more you help, the more it gives back in return. It is a kind of virtuous circle. We recently launched solar energy loans, for instance, which allow people to install solar energy equipment and repay it in installments. Through this we give visibility to the bank, make money and also manage to reduce our clients’ cost at the same time.
We are saying that the environment is Lebanon’s most important equity. If we can reach the same level of solar panel usage as in Cyprus or Israel, then we can lower the national energy bill and improve the balance of payments. This is what I mean about being aggressive and conservative at the same time.
E Will your new headquarters be ready soon?
Not very soon. It is a long process as you need at least a year to get a construction permit in downtown, which is a pity. Having said that, we have almost finalized the design and from a short list of ten international architects, have chosen a German architect from Berlin who works hand in hand with “Batimat”, a highly reputable design house. The building will be one of a kind in the region.
E Last but not least, you have also applied for an Islamic Banking license. Any update on this?
We have already invested in Islamic banks in Bahrain and Sudan. In fact we have done an extensive study on Islamic banking in Lebanon and we feel we should start working in this area shortly.
We have also invested extensively in human capital to be able to sustain everything that is happening at the same time. We are tackling six or seven countries, arranging our GDRs, issuing capital increases, launching a private bank and an investment bank and applying for a financial company in Lebanon.
On top of all that, we sill have to try to remain vigilant and conservative.
