To listen to Jean Riachi tell it, the massive success of Investcom’s recent IPO offering could have been predicted by anyone in possession of even the most basic understanding of the regional investment market. “This was expected,” the chairman of Financial Fund Advisors (FFA) said, adding, “because once the IPO was announced, we received a lot of calls from Gulf customers who told us they were interested. And this level of interest was confirmed by HSBC and Citibank’s [participation] in the issue.” But what neither Riachi, the bookrunners, nor anyone else in Lebanon’s investment community seems to have predicted was the potential for widespread animosity and resentment in the aftermath of the allocation.
Out of their hands
Audi Saradar Investment Bank, the one Lebanese bank that was appointed a distribution agent, was unable to distribute the bulk of Investcom’s virgin shares to its own clients. In the end, Investcom carried out the allocation on a basis far removed from the “pro-rata” custom of distribution used to smooth client egos and guarantee at least a modicum of fairness in what remains a under-regulated industry.
There were red faces all round and, because many of the bank’s clients had broken time deposits to release funds, hastily-prepared explanations were dispatched. “The significant majority of the Bank Audi allocation (approximately 85%) was directed, by the company and the selling shareholder, to certain Gulf investors,” stated a Bank Audi circular to its reportedly 360 clients who had generated a demand of some $1.2 billion. “We regret any inconvenience that the allocation process may have caused you and wish to assure you our continued commitment to our clients.”
Accusations flew: the offering was flawed, hyped as an IPO but in reality it behaved as a private placement; the company was nothing more than a money making front for Syria’s Assad family and its entourage who, in a fit of pique, deemed there should be minimal Lebanese allocation; the IPO was merely an opportunity to turn a fast buck (a doubter only had to point to the extremely mediocre performance of the share price two weeks after the offering – slipping from $15 to $12.5 – to draw that conclusion).
Whatever the rumors and conspiracy theories on the local market (Investcom has denied them all – see page 68), the IPO was the event that propelled the company from relative obscurity into the spotlight of the financial world. From continuous coverage from the Financial Times and Dow Jones, to a successful capping replete with flashy advertisements on international news channels, the IPO was seen as a motif of optimism, growth and prosperity. The offering also set two milestones: first, by being the biggest international share sale by a Middle Eastern company, and second, as being the first to be listed on the newly formed Dubai International Financial Exchange (DIFX). The IPO – which was an international offering to institutional investors outside the United States – offered 59,995,428 GDSs (128,548,569 new shares and 171,428,571 existing ones) at a price of $12.35 per GDS. Each GDS, listed on the London Stock Exchange and the DIFX represents five ordinary shares. Upon issue, the GDSs were evidenced by a single Global Depositary Receipt.
The effect of the malaise
But what of the residual bad feeling? According to Walid Mussalam from the Middle East Capital Group, Investcom’s public debut was “handled in a manner which is unusual for an IPO of this kind, especially in developed markets.” But while Mussalam noted “it’s not unusual to have an allocation to friends and family of 5% or 10%,” the hearsay currently making the rounds among Lebanon’s investment community puts that figure much higher in the case of Investcom’s allocation. Mussalam said that while he personally views the Investcom IPO as being “definitely very good for Lebanon,” he also admitted that the current wave of bad feeling should also be “a lesson for anyone who tries to do this in the future.”
While making clear that he was speaking in broad, theoretical terms – and not talking about Investcom – Nicholas Sawan from Fidus noted that the practice of allocating shares among company favorites can work against the interest of the company itself, as well as against the interest of investors without connections. “It can result in a bad conflict against the idea of what IPOs are supposed to do in the first place,” Sawan said, noting that most companies should be using the opportunity of a public offering to build up a core of committed, outside investors who won’t simply flip the stock after a more-or-less guaranteed first-week profit. Also, if too many of a company’s shares are allocated to those close to the original owners, Sawan said: “What they do is hand pick, and when they hand pick, they are thinking about their short-term interest.”
Even less charitable was an official at a prominent investment house – who requested anonymity so that he could speak frankly about Investcom without damaging the interests of his clients – who said: “They [Investcom] should have been more careful. They blew a real success story with the way they handled their IPO. In fact, I was very happy the way it [the IPO] was handled poorly, that is, outside of Lebanon … If it had been done here, and it had happened like this, all the focus would be on Lebanon, and a lack of transparency.”
And while it’s important to remember that, with no cellular operations in Lebanon, the question of what, if anything, Investcom owes the Lebanese investment community is a fair one to ask, investment experts interviewed by Executive voiced private concerns about whether Investcom’s IPO model would become an acceptable model for privatization in Lebanon. One expert who requested anonymity said: “If this is going to be the norm, some of the clients we have will not be in the market. The bigger the client, the more upset he is when he is not given special treatment. Some clients take it personally … the real big ones are saying: ‘We’re out, we’ll never touch another Lebanese issue again.’”
Recovering from the backlash
But even Investcom’s most fervent critics doubt that the sharp pain of being cut out of the IPO will have a long-lasting effect on the company’s ability to do business. “People will go for the rational, not the emotional,” said one. Another critic simply said, “business is business.” Of course, the rub is that few would have cared about transparency and institutional fairness if Investcom weren’t so profitable in the first place.
Citing liquidity in the Gulf region and broad-based interest in the telecom sector as the main drivers behind Investcom’s over-subscription, Riachi suggested Investcom’s aggressive pursuit of profit in risky locales such as Afghanistan was, for the moment, being rewarded with a willingness on the part of investors to come along for the ride. “It [the stock’s current price] might be high for such risk … but the market has an appetite for this risk right now. They [Investcom] know how to take a profit through clever moves. It’s a success story, and the company’s management is quite good.”
Or at least good enough to not need to worry about ruffling feathers. That, finally, may be the lesson of IPO’s in Lebanon, where being able to turn a healthy profit in Syria means never having to say you’re sorry.