Executive Magazine

Sweet offerings

by Sami Halabi May 3, 2012

written by Sami Halabi

Patchi International (Patchi), the family owned Lebanon-based chocolatier with operations in over 29 countries, is planning to offer up to 49 percent of its ownership to a strategic partner in the next two years, its Founder and Chairman Nizar Choucair tells Executive.

“We believe that we cannot continue by ourselves,” says Choucair. “We are not in need of funding. We just need companies in our field of business that have more expertise than us in the areas we are willing to invest.” Strategic partners will be included on the company’s board of directors on condition that they do not divest for a period of five years from time of acquisition.

The plan for expanding its shareholder base was first hatched in 2009 when Patchi had announced that it was interested in floating 49 percent of the company through an initial public offering (IPO) but later called off the listing citing post financial crisis market conditions as the reason.

Choucair declined to give details on how much the company was worth or what the target price of any IPO would be, stating that a valuation for the company has not yet been set. However, he says the company has seen a 45 percent increase in turnover since global coca prices spiked in 2010.

According to Choucair, who has run the business since 1974, the new expansion could be a mix of equity participation and IPO but the company has yet to decide whether it would offer the entire proposed stake to a strategic partner, put it on the market, or seek a combination of both. He adds that currently the company is targeting a sale of between 45 and 49 percent.

Listing in Lebanon, however, is not an option for Patchi because, “Lebanon has no laws that protect you or the partners you work with and lawyers can fool you,” says Choucair. Instead, he adds that the company will actually move its registration to the United Kingdom’s island of Jersey for its tax laws and because it “acknowledges the [Sunni] Islamic laws that state that when the owner dies, they give a share to the son, and half of that to the daughter.”

When asked about the type of partner Patchi would be willing to consider selling a stake to Choucair stressed that the company was not looking to sell to a private equity fund but rather to a company larger than Patchi in the same line of business in order to serve their new target markets.

According to Choucair, in the coming years Patchi will focus its retail expansion in the Far East with a focus on China. The move is another in a series of expansionary measures by the company away from its local Lebanese market. Patchi’s largest operation is in Saudi Arabia where it also has concentrated the manufacture of its chocolates.

But while the company’s main expansion focus is outside its home nation Choucair insists he is not giving up on Lebanon. He tells Executive that a new 15,000 square meter factory some 40 kilometers south of Beirut is slated for opening by the end of the year and adds that Patchi also expects to open four new branches in the country (Hazmieh, Nabatiyeh, Jbeil and Tyre). “But that would be it in Lebanon,” he says. “I love Lebanon and am still investing here since this is where I belong. However, I will not invest any more than that.”

May 3, 2012 0 comments

Economics & Policy

Lebanon’s awkward first steps

by Zak Brophy May 3, 2012

written by Zak Brophy

For more than 14 years Lebanon has watched in frustration as neighboring Israel and Cyprus have searched for and discovered rich reserves of hydrocarbon fuels under their maritime waters. Political instability and ineptitude had ensured that Lebanon remained a jealous bystander during this period. However, the passing of the first implementation decree pertaining to the Offshore Petroleum Resources Law on January 4 suggested that the country was finally on course to join the bonanza.

A short flurry of hubristic statements for the press at the beginning of the year suggested the petro-dollars would soon be bulging from the state’s coffers, providing plenty for all. However, while credit must be given to the Ministry of Energy and Water (MoEW) for having finally got the show on the road, some faltering and somewhat dubious occurrences suggest the country has stumbled as it shoots out of the starting blocks in its race for hydrocarbon riches.

Gebran Bassil, minister for energy and water, confidently told reporters back in January that the Petroleum Administration (PA) would be named within a month, the first tender round would begin within three months and the first exploration contracts would be signed by the end of the year. However, as Executive went to print at the end of April, the PA had yet to be appointed.

“This administration is the most important thing for the pre-launching of the exploration rounds and the tender rounds,” says Roudi Baroudi, an independent energy consultant and secretary general of the World Energy Council’s Lebanon member committee. “Once the PA has been nominated they can immediately move ahead with the different consultants they have to start preparing the bid rounds for exploration and to define which blocks they would like to have the companies bid for.”

From council to council

The passing of the decree approving the bylaws of the PA in early January should have immediately paved the way for the creation and staffing of the PA. However, on January 29 the Shura Council, Lebanon’s administrative advisory body, issued an opinion noting no less than 51 points of contention with the decree. In a copy of the document obtained by Executive, the first point raised is that it is incumbent upon ministers to send decrees to the Shura Council before they are sent to the Council of Ministers (COM), Lebanon’s cabinet. It notes that in this case the Shura Council was bypassed and the decree was submitted directly to the COM.

Cesar Abou Khalil, advisor to the energy minister, said, “The Council of Ministers re-voted on this decree and confirmed it, so it is pointless to discuss what issues the Shura Council has raised now that the Council of Ministers has used its prerogatives and have confirmed it. It is confirmed and in vigor.”

Shura council rulings on decrees are advisory, but they ensure that they are harmonious with Lebanese laws and the constitution. However, the course of events ensured that the COM was caught in a bind whereby, even if they had wanted to, it would have been difficult to adopt the Shura Council recommendations after already issuing the first decree. In such a scenario they would have been obligated to pass a revised decree, which would have left them looking both incompetent and inconsistent in the eyes of the prospective oil companies. The COM voted on March 21 to ignore the Shura Council and proceed with the January decree in its original form.

The majority of the 51 points from the Shura ruling are for minor technical details, but some significant issues are raised with regards to the independence enjoyed by the PA. For example, the Shura Council ruled that article 6 of the decree that gives the minister power to impose punitive sanctions on the PA, including a deduction in benefits, was in contradiction to the Offshore Petroleum Resources Law passed on August 24, 2010. In that law the PA is afforded financial and administrative independence under the Wasiyeh, or tutelage, of the MoEW and it is the level of control incorporated into this Wasiyeh to which the Shura Council took exception.

Abou Khalil from the MoEW, however, argued, “[The Petroleum Administration] is purely advisory… They have administrative independence because they are named by the COM and only the COM can dismiss them. The minister cannot dismiss any of them. But by law 132, [August 28, 2010] it is an advisory body to the MoEW. Under our watch, there will no breach to the constitution. The minister is the head of his sector.”

According to Abou Khalil the ministry is fighting a precedent set during the time of former Premiers Rafiq and Saad Hariri, as well as Fouad Saniora, which “hollowed the ministries by creating these independent bodies which are under the tutelage of the prime minister… The oil sector should be under the minister and it is the same in all of the ministries.”

Another significant objection of the Shura Council was to the proposed rotating chair of the PA. Under the MoEW plans the six members will each spend a year presiding over the body, which breaks with the convention of appointing one chairperson within such bodies. Opposition member of Parliament and head of the Parliamentary Energy and Public Works Committee, Mohammad Qabbani, is opposed to the level of control the MoEW is set to have over the PA arguing, “The idea of the presidency rotating between the six members will only weaken the power of the administration.”

Abou Khalil confirmed this was for all intents and purposes true, but argued that it is a positive and necessary development: “When there is a rotating presidency there is a cross auditing between the members… This sector, we believe, will become one of the main drivers of our economy and development in the near future. We need to be tough on this issue, we don’t want to create another body that can become stronger than the government.”

The COM is within its rights to either heed or ignore judgments by the Shura Council on proposed decrees, but the fact that the Shura Council was not initially consulted, as is both protocol and law, and topics of considerable import were later contested, hardly sets a promising precedent for the development of this nascent industry.

Filling seats in the PA

Malek Takieddine, a Beirut-based legal consultant who works closely with international oil companies in the United Kingdom and Iraq, pointed out that the delay in appointing the members of the petroleum administration has been a cause for concern for some oil companies. Nonetheless, he argued there is still strong interest from international players in Lebanon’s play, given the initial achievements of the ministry.

With the decree in its original form re-voted on by the COM, Prime Minister Najib Mikati told Parliament in mid-April that the PA would be announced within the month, and as Executive went to print the government was in the process of selecting candidates through the Office of the Minister of State for Administrative Reform and Development (OMSAR).

There was a time lag of some three weeks between the passing of the decree in March and the launching of this process, raising concerns that the major political players had tried and failed to barter the PA appointments before moving to the more formal approach. Going forward, which strings will be pulled to influence the appointment of the PA and the PA’s day-to-day operation remains an open question.

“If a minister decides to go through a procedure where there is deliberating, accepting applications and examining CVs before taking it to the Council of Ministers then we hear such accusations,” said Abou Khalil. “And if we propose the names right away to the COM they scream ‘oh, they brought their guys.’”

The oil and gas industry is incredibly complex, with large sums of money at play, and so the PA requires high caliber professionals with extensive and particular skills —however, qualified candidates will not be easy to land.

One of the pre-requisites for applicants is 10 years experience in the industry, but Takieddine reasoned, “It needs to be clarified when we say experience, it needs to be specifically upstream.” In common speech upstream is a reference to stages within the industry such as exploration and production, while much of Lebanon’s current involvement, and therefore skill-base, in the sector is in downstream activities such as marketing and distribution.

Furthermore, industry opinions point out that the wages envisaged for members of the PA, while being hugely generous for a Lebanese government employee — expected to be around $10,000 per month — would be considerably lower than similar-level private sector posts in the oil and gas industry. The majority of Lebanon’s talented workers with suitable upstream experience are based abroad and the government may struggle to lure them home with such wages.

The MoEW’s Abou Khalil dismissed these concerns, assuring that the quality of the applications were more than up to scratch. “They will be stunned when they see the CVs,” he said, and while acknowledging that the wage would be small compared to what could be expected from comparable posts with major oil firms, he was confident that enough talented Lebanese would want to share in the development of this potentially very lucrative sector for the country.

As with all public sector posts there is an age limit for applicants, which in this case has been bumped up from 35 to 57. However, Takieddine argued that the posts on the PA are perfectly suited for highly skilled and experienced people who are near, or past, retirement age, and would be more likely to accept a considerable drop in pay in order to return home and take on these important and challenging roles. Although the maximum age is 57 he argued an exception could be beneficial in this case. When asked if the MoEW would consider such a move Abou Khalil responded, “Then we would have a real problem with the Shura Council…We have pushed it to the maximum that we could.”

Perhaps one of the biggest hindrances to filling the PA with qualified people is the rigmarole of satisfying the sectarian divide. Within the pool of grade one posts in government, such as the PA, there has to be a balance in the representation of Muslims and Christians according to the constitution. However, over the years, it has become protocol to balance the allocations not just across the whole body of grade one posts but in every administrative body across the country’s main religious sects. Qabbani argued, “It should not apply to every administration. It should be a ratio that applies to the whole basket of first grade positions. It’s suicide.”

Considering the massive importance of administering and managing the oil and gas sector properly, there have been calls for the PA to be staffed purely on ability. “In the current arrangement qualifications and merit are not being sought after but rather it will be the blackmailing of each community against the others,” says Yahya Hakim, board member of the Lebanese Transparency Association, the local arm of the global anti-corruption organization. “Each community will be putting [forward] someone who speaks in their name, not someone who can really run the show. So all of the issues will be political and not in the hands of the professionals as it should be.”

Although it is only a legal requirement to balance the sectarian ratios across all first grade posts, and not in every administration, it seems that this practice will still be applied to the PA. “We will employ people with the best capabilities while respecting the Lebanese system,” said Abou Khalil, in reference to the sectarian balancing act in top level recruitment.

Minister Gebran Bassil has surrounded himself with a technical staff that has worked assiduously to lay the groundwork for the development of Lebanon’s oil and gas sector. Some progress is being made. However, the irregular way in which the decree was passed raises concerns over the integrity of the approach. All eyes are now focused on exactly what kind of body the PA will be and what role it will play in the evolution of this embryonic, yet potentially vital, industry.

May 3, 2012 0 comments

Comment

Rolling back the frontiers of reform

by Jihad Yazigi May 3, 2012

written by Jihad Yazigi

On March 18 the Syrian government announced it would set price controls for a whole set of key commodity items, and that all retailers will have to comply with the new restrictions. The decision is a response to the surge in prices witnessed recently in the local market. Indeed, while inflation remained relatively under control for most of last year, the last few weeks of 2011 saw a steep rise in the price of various consumer items, particularly food products; this trend has only accelerated since the beginning of this year.

The factors behind these price rises include the depreciation of the Syrian pound, the suspension of the free trade agreement with Turkey, the rising costs of banking and transport insurance due to economic sanctions, logistical and supply difficulties across the country and the increase in production costs due to growing power shortages. The prices of many food items such as sugar, rice, vegetable oil, tea, poultry, meat, eggs and butter have risen by double digit-figures in recent weeks; sometimes by up to 100 percent.

In effect, this dramatic move by the government marks a return to price control practices that had been abandoned long ago, when the Syrian government began to liberalize its economy in the mid-1980s. It is also a move to show the Syrian people that their government is doing something to relieve them from increasingly difficult living conditions. The Minister of Economy Mohammed Nedal al-Shaar said that “some greedy” traders were trying to benefit from the Syrian crisis, with local press accusing them of “sucking the blood of poor Syrians.”

This discourse on the responsibility of the business community is likely to be well received by large segments of the population. Four decades of socialist policies and anti-business discourses have, indeed, helped shape the mind of many Syrians. The Baath party’s rise to power, which promoted the country’s rural population and widened the size of country’s middle class, was largely made at the expense of the land-owning and urban elite that ruled the country since its independence from France in 1946. Putting the blame on capitalists, traders and the bourgeoisie was a regular part of the official speeches of Syrian leaders from most of the 1960s to the mid-1980s.

Obviously, the accusation was not to the liking of the business community and, in a statement, the head of the Damascus Chamber of Commerce asked the local media to stop blaming traders, who were “part of society and not imported!” The bad press for traders is, however, not solely to be blamed on ideology. It is also to a large extent the reflection of the severe market distortions present in the Syrian economy. Indeed, oligopolistic situations continue to prevail in a wide number of business sectors and although in recent years government officials used to acknowledge this more or less openly, nothing significant was made to curb these practices — doing so would, indeed, have endangered the interests of too many people closely tied with the government.

More significantly, the trade in accusations between government officials and traders reflects the dismal way in which the liberalization of the Syrian economy was conducted. Under the management of Abdallah Dardari, the key decision maker on economic policy in the Syrian government for almost a decade, large sectors were liberalized in the hope of attracting private investment. While in itself this opening was widely deemed necessary, it was conducted in a largely unregulated environment.

The retreat of the state coincided with the lack of a civil society and of its institutionalization (for instance consumer protection bodies) which enjoy little judicial oversight over enforcement. The large number of restrictions, which formally regulate business practices, helped give the impression that the State continued to cater to the general welfare. But in practice, a structurally corrupt administration acted more as a middleman for business actors than as an efficient body defending the interests of society.

The consequence of all this has been an increasing income gap and a gradual meltdown of state institutions. In a statement to the press, Shaar admitted to how empty-handed he felt. In reference to when the state still had a strong hand in regulating the economy he said: “We are no more in [the year] 2000.” It was also the year Bashar al-Assad became president.

May 3, 2012 0 comments

Finance

Money Makers

by Maya Sioufi May 3, 2012

written by Maya Sioufi

With the macroeconomic blues still singing in the headlines, the prospect of earning big returns through conventional market investments — such as buying stocks, bonds or trading foreign currency — seems increasingly uncertain. Investors are looking for alternative assets, for real deals, for something they can touch, such as acquiring property or investing in a start up.

Lebanon has its share of alternative investment opportunities to offer those looking to place their capital. But these opportunities will not to be found at local banks, which have largely run dry on deals; it is the small number of private equity firms in the country that hold the keys to the lion’s share of these investments. Small and medium-sized enterprises represent the vast majority of Lebanese companies, but increasing limitations on their access to leverage means raising equity through selling stakes in their companies often becomes the only solution if they wish to grow.

This urgency to access capital, combined with the increasing awareness of the financial benefits of raising equity — no regular interest payments — is intensifying SMEs willingness to chase this route. Private equity funds have taken note. New funds dedicated to Lebanon — such as Riyada Enterprise Development’s Lebanon Growth Capital Fund and Middle East Venture Partners’ Building Block Equity Fund (BBEF) — are jumping on the bandwagon. Other funds dedicated to the Middle East and North Africa are also looking to invest in Lebanon — such as Wamda’s and Capital Trust’s Euromena funds, which have already made two of their last three investments in Lebanon. SMEs need capital to expand, but this expansion is often outside of their home market as the prospect for further internal growth remains small. Lebanon is the lab in which concepts are tested, with successes here then taken abroad.

In the following pages, Money Makers details close to $200 million worth of investment opportunities in Lebanon, with this new regular feature of Executive catering to those enterprising individuals looking for alternative avenues to expand their financial portfolios and change the country’s financial landscape.

1- Building Block Equity Fund

What’s the deal? Participate in a fund that will invest in Lebanese enterprises.> Who is running the fund? Middle East Venture Partners (MEVP) headed by Walid Hanna.

What type of companies will the fund invest in? The fund is opportunistically looking to invest in Lebanese start up companies in any sector with a preference for those that have a tech component. “The magic word is scalability,” says Hanna, noting that MEVP is looking for small companies with rapid growth potential.

What is the size of the fund? BBEF currently has $8 million in assets (none invested yet) and will start raising another $7 million this month. Hanna expects to have completed the financing within three months.

What is the minimum ticket (investment)?$200,000; there is also a maximum ticket of $2 million.

What is the term of the fund? Six years with a one-year extension option

How much will the fund invest in each company?The fund will take minority stakes by investing between $200,000 and $1.5 million per company.

What is the target rate of return? The target internal rate of return of the fund is 30 percent.

How will MEVP exit the companies? By selling their stake to a strategic investor in the same line of business, to a private equity fund, or to an investor looking for a high growth company.

What if MEVP can’t exit an investment? “We can force majority shareholders to buy us out at a multiple of 2 within 5 years” says Hanna.

Give me more details: This is MEVP’s second fund. Its first fund, Middle East Venture Fund, raised $10 million by June 2010 and has so far invested $6 million in a total of eight companies.

How to invest in this fund? Contact MEVP at [email protected]

"Banks tell small and medium enterprises (SMEs) your debt-to-equity ratio does not make sense, we can’t lend to you, you need equity but no one is providing equity to SMEs. That’s why they need a fund like BBEF and then they can leverage the equity with bank debt”, says Walid Hanna, Chief Executive of MEVP. "

2- Lebanon Growth Capital Fund

What’s the deal? Participate in a fund that will invest in Lebanese enterprises.

Who is running the fund? Riyada Enterprise Development (RED) owned by Abraaj Capital, the Middle East’s largest private equity firm.

What type of companies will the fund invest in? The fund does not have a sector focus. “We will invest across multiple sectors, some are very low risk, low growth and some are high risk and high growth,” says Elie Habib, Lebanon country manager of RED. For a company to be considered, it has to have a minimum worth of $7 million.

What is the size of the fund? It already has $30 million of committed capital from Cisco, the European Investment Bank and Abraaj Capital. RED is now looking to secure $20 million from Lebanese investors. “The sooner, the better; there is no set date,” to meet the target, says Habib.

What is the minimum ticket? The minimum ticket is $500,000 and there is no maximum. If investors want to come in for less, a feeder fund can be put in place in which investors place their capital and then the total is invested in the fund.

What is the term of the fund? Eight years, which consists of an investing period lasting four years during which the funds should be invested in Lebanese companies, and a harvesting period of four years during which the investments should be exited. There is a one-year extension option for each period.

How much will the fund invest in each company? The fund aims to invest $3 million to $4 million per company by taking minority stakes (minimum 20 percent).

What is the target rate of return? The target IRR for the fund is 30 percent.

How will RED exit the investments? “Before we enter, we study the exits,” says Habib. Exits will be achieved through a merger with another company, through a buyout by another private equity firm or a strategic buyer such as an international company looking to expand into the Middle East, or through the founders buying out RED’s stake.

What if RED can’t exit an investment? “We put in a ‘forced realization’, that is if after five years there is no sale or we rejected all the offers then we can force an exit; either the founders buy us out or we find them a buyer. It is a joint decision with the founders,” says Habib.

Give me more details: Lebanon Growth Capital Fund has so far invested in just one company by injecting $3.25 million in Nymgo, a software application allowing users to make calls from computers to phones over the Internet. Founded by Omar Ounsi, Nymgo differs from Skype by having a 100 percent paying customer base for voice offerings.

How to invest in this fund? Contact Elie Habib at 01-983640

3- Beirut Terraces

What’s the deal? Shares in a high-end residential property project in Beirut Central District’s Minet El Hosn area.

What is the size of the offering? $100 million

What am I acquiring? Shares in a residential apartment with prices starting at $1.5 million; price is subject to a 20 or 30 percent discount.

What is the term of investment? Four years from closing date, which has been postponed from March 31, 2012, to an undetermined date.

What is the coupon rate (rate of return)? 7 percent of the investment’s value per year.

What are the exit strategies? Shareholders have a call option (the right to purchase a unit) at a 10 percent discount at the end of the third year. If this option is not exercised, then in the fourth year, the owners have a put option (the right to sell the unit) to the shareholder at a 20 or 30 percent discount. If the options are not exercised then the shareholder is paid back his initial investment with the 7 percent annual coupon.

Can I get access to leverage? BankMed is offering a loan facility for 70 percent of the investment.

Developers/Owners/Architects? Benchmark Development, also behind Wadi Hills Residences, are the developers of the project. It is owned by DIB Tower and Town Tower and designed by Swiss architects Herzog and de Meuron, those behind the Tate Modern museum in London.

Give me more details: Beirut Terraces, a vertical village overlooking the Beirut Waterfront, is comprised of 25 residential floors with 130 apartments. It also has one retail floor and 5 underground parking floors. Each apartment will have its own terrace and selling prices will start at $5,200 per square meter. The building is expected to be completed in 2015.

Interesting extra: There is a free iPhone application.
How to invest in this real estate project? Contact BankMed at 01-361380

"There are two key features of this product: the coupon payment which allows the investor to earn while he/she waits for the unit to be delivered, and locking in the price of the unit for a significant period of time, says Khaled Zeidan, general manager of MedSecurities, a BankMed subsidiary "

4- Wamda Fund

What’s the deal? Invest in an early stage MENA fund run by Lebanon-based Wamda.

What type of companies will the fund invest in? The Wamda fund is part of a wider entrepreneurial ecosystem looking to empower entrepreneurs in the MENA region. The fund hopes to invest in the early stages of two types of companies throughout the region. “The first type are technologically advanced companies that can succeed globally, and the second type we call ‘copy paste innovate’,” says Wamda’s CEO Habib Haddad. “Its not that we want to promote clones but we think there is so much value and white space that can be filled in the regional market so a good team with good execution can go after that.”

What is the size of the fund? So far the six-month-old fund has only one anchor investor (though the amount invested remains undisclosed) and it is looking to raise $15 million this year with an aim to eventually reach $25 million.

What is the term of the fund? The fund is looking to invest between $50,000 up to $1 million per company over the four years and expects to have exited the investments within six years.

What is the minimum ticket? $100,000

What is the target rate of return? The target IRR for the fund is 45 percent.

How will Wamda exit the investments? Haddad sees three types of exits for the fund: A buyout of investments by European and US companies looking to enter the regional market, a buyout by companies in emerging markets such as Turkey, China and South Africa, and finally a buyout by local companies. “Local markets present the biggest opportunity; it might be time for them to wake up and start acquiring,” says Haddad.

How to invest in this fund? Contact Wamda at [email protected]

5- Mach-3D

What’s the deal? Invest in the development of an online social platform looking to open a lab
in Lebanon.

What is Mach-3D?

Headquartered in Luxembourg, Mach-3D offers a ‘mood-based’ platform that enhances the web and mobile experiences through personalized 3D profiles, interacting and sharing emotions. It uses a core technology called 3DoM (3D Operated Motion), that transforms pictures into realistic, emotional and customizable 3D avatars, called Living Portraits (LP). Through its cloud platform and the users' favorite social networks, LPs can interact with one another by sharing emotions, communicating and exchanging virtual gifts.

Who founded the company? There are three co-founders: Chief Executive Chandra de Keyser, Chief Technology Officer Massimiliano Tarquini, and Alessandro Ligi, the senior software architect.

What are the expected revenues of the start up? The founders expect revenues to reach $900,000 in 2013 and grow significantly to reach $9 million in 2014. It projects a positive cash flow by the first quarter of 2014 and it expects to break-even by the end of 2014.

What’s the link to Lebanon? They plan on opening a lab in Lebanon and they aim to hire 8 people. They have partnered with the Investment Development Authority of Lebanon (IDAL) for their expansion.

How much capital do they want to raise? They have €200,000 ($263,000) of seed money taken as equity from the two founding companies, Internationalize-IT based in the United States and 4IT based in Italy. They are looking to raise another €500,000 ($657,000) to hire more talent. “We are keen to have a ‘hands on’ investor who can coach us, help us develop strategic relations with clients, partners and give us visibility,” says de Keyser.

How to invest? Contact Capital Trust on 01-368968

How to invest in this start up? Contact IDAL at [email protected] or 01 983 306 Extention 233

6- Euromena II

What’s the deal? Capital Trust has already raised the total amount for its second fund dedicated to the MENA region, Euromena II. It is now deploying the funds into companies in the region. For two of the upcoming deals, it is looking to invest $20 million: $13 million (the maximum limit allowed by the fund) will come out of the Euromena II fund and Capital Trust is looking to raise an additional $7 million for each deal from private investors.

What are the two companies it is looking to invest in? One of the investments will be in an oil business in the Levant area and the other one is in a recycling business in North Africa. Capital Trust cannot disclose more information on the potential investments at this point. The two investments will be made out of Lebanese holdings.

What is the minimum ticket? Investors have to come in for a minimum of $1 million.

What is the target return on these deals? Capital Trust targets an internal rate of return (IRR) of 20 to 25 percent over four to five years. “If we can’t make at least twice our money then we don’t invest” says Romain Mathieu, the managing director of the Euromena funds.

When will the fund exit these investments? After four to six years.

How will they exit? All the options are on the table from a strategic sale to a secondary buyout to listing on the stock exchange. “What is important to know is that we never invest before having a very clear idea of the exit route of the deal. Investors know the most likely exit route,” says Mathieu.

What is in it for investors? As they would be investing in a company and not in a fund, investors would be taking a specific risk. They would invest because they like the sector, the region or the management, or “most of the time because they want to try us before investing with us in upcoming funds” says Mathieu.

Tell me a bit more about Euromena funds? Euromena I raised $64 million and has invested in nine companies, of which three have already been exited returning more than 50 percent of the commitment. Three of the investments were made in Lebanon: chemicals company Sodamco, Intercontinental Bank Lebanon and Chedid Re, a reinsurance company. The second MENA dedicated fund, Euromena II has raised $100 million and has so far invested in three companies, of which two are from Lebanon: First National Bank and Khoury Home, a retailer of household products.

How to invest this fund? Contact Capital Trust at 01-368968

7- Grade ‘A’ office space in Beirut

What’s the deal? Invest in prime property in Beirut’s Central District on which a multi-use modern office tower will be built. The project will consist of two towers of 25 to 30 floors. Each floor will be made of 700 square meters of office space.

What is the size of the offering? Capstone is looking to raise $18 million. “We will start raising capital in a few weeks,” says Ziad Maalouf, Chief Executive of Capstone. He expects the raising of capital to be completed in a couple of months. They will be taking on leverage for the project. For every dollar of equity raised, they will take a dollar of debt.

What are the expected returns? 30 percent annual returns.

What am I acquiring?Investors will acquire shares in a company, which will own the land and the entire project.

What is the minimum ticket? Investors wanting to pour funds in this deal need to come in with a minimum of $500,000. There is no maximum.

What is the term of the investment? The project will be completed within four years, after which investors’ capital and profits should be returned.

Who are the developers/architects? Capstone is the developer and they intend to retain an international architect for the project.

How to invest? Contact Capstone at 01-993311

May 3, 2012 0 comments

Economics & Policy

Tomorrow’s ‘good society’

by Ghassan Hasbani May 3, 2012

written by Ghassan Hasbani

The ‘good society’, in a connected world, is one that provides a framework for people to realize their potential in a meaningful and dignified manner. Steps toward this society, and economic growth, are being realized today by developments in information and communication technology (ICT), and by people who have grown up connected to the Internet.

Those who are getting their first job today, those born around 1990, are the spearhead of the future economy: the first generation to know the World Wide Web for the entire course of their lives. They are at the vanguard, leading future generations into an increasingly borderless society and an economy that is global and highly connected. For them to build the good society of tomorrow, they must be allowed to operate within a framework that provides connectivity and basic business infrastructure, one with regulations that fit the realities they face, and one that provides access to investments to fund the realization of their visions.

However, looking at the prospective opportunities, we must acknowledge the challenges and risks that are likely to dominate the global socio-economic and political scenes over the next 10 years. At the 2012 World Economic Forum in Davos, world leaders agreed on three risk dimensions, as published by the WEF’s Global Risks Report.

The first category of risks entails growing income disparities and widening social gaps among young and old between East and West and within the West. The combination of these factors could create a dystopia, a global society full of hardship and void of hope. The second risk relates to the readiness and speed with which governments and governance systems respond to change and the third risk stems from the rise of hyper-connectivity that creates the specter of cyber attacks.

Responsibility for addressing these risks falls to national governments and stakeholders in international governance systems on the one hand, and on the other to companies such as the leading telecommunications and ICT firms that provide the infrastructure for the connected global economy.

So how can these global risks be addressed and a good society created over the next decade? The answers lie somewhere within the risks themselves; hyper-connectivity and the cyber world, while creating the majority of risks, also provide many of the solutions if handled well.

Where we are threatened by income gaps and polarization of societies with chronically unemployed youth and state-dependent impoverished retirees, connectivity can help economies to reach sustainable prosperity. In three examples where ICT can be a major factor in building a good society, I want to highlight education, healthcare, and e-government.

Education: The use of technology and provision of a connected infrastructure for universal learning in the classroom of the future can simultaneously increase the quality of education and improve its affordability in all corners of the world. Students in rural areas or urban ghettos, which have been historically deprived of quality education, will have better chances to realize their economic potentials through connected education.

Healthcare: Connectivity in healthcare will reduce the burden of skyrocketing medical costs on older population groups and help in creating a healthier society with huge positive implications for increased and extended productivity of citizens. Realistic examples are remote diagnosis and also remote operations, where a surgeon in the United States can perform surgery in Lebanon using cyber-controlled robotics. Similarly, connectivity in healthcare could allow remote heart monitoring or tests for blood sugar levels. Faster, more efficient and more affordable care for the most wide-spread medical problems of our time will result not only in greater well-being of people and create healthier workforces, but also keep in check the healthcare cost for the state and families.

Government services: Connectivity in provision of governmental services, e-government, represents a third immense potential to use ICT for building a good society through reduction of public sector costs and through decentralization. In adapting all administrative government processes to electronic infrastructure, we can apply for a passport, legal documents and register property transactions without the need to go a government office. This decentralizes access to services while it maintains control centrally to reduce the possibility of human error or fraud and thereafter creates efficiency.

There is a need for proper regulation, however. Too much government intervention and protectionism would stifle progress; too little, and it will open the room for greed, and abuse of power. The balance will be struck by creating an efficient yet largely liberal economy in which governments create the necessary policies and regulatory safeguards for the emerging world, while allowing the private sector to compete in a fair and transparent environment. This approach will require policy makers to set clear rules and enact governance systems that are suited for managing a connected world.

As the breakneck speed of technological change and the rise of new trends in hyper-connectivity create new opportunities and risks, the governance systems need to be able to respond to changes faster than ever before. The liberal management of economic sectors will also need to create sufficient reasons and incentives to attract investments in sectors best suited for private initiative while maintaining sovereign authority in other areas.

These examples are based on solutions available today, but will require some time to achieve mass-market adoption. Implementing these effectively will require things such as everyone having access to a mobile phone and an internet connection, and for the fixed internet to work with high reliability. ICT readiness and quality are key to tomorrow’s good society.

May 3, 2012 0 comments

Advertising Special Report

Ad-vice from the top

by Executive Editors April 14, 2012

written by Executive Editors

“The problem is this [‘Arab Spring’] came in the wake of the remnants of financial struggle. The environment is not conducive to a high level of investments. Clients are maintaining their strategies rather than implementing aggressive ones.”

“At times like the ones we are in today, tactical or immediate-result advertising becomes the main requirement. The pressure is definitely on creatives today to deliver immediate or short-term results. I can see that 2012 will be similar to 2011 and 2013 will also be similar in the way that everybody is looking for immediate results. The big ideas and big deliveries will not disappear but they will be less and less.”

Joseph Ghossoub, chairman and chief executive officer, Menacom Group

“We have come a long way in developing planning and doing campaigns that no longer address a single media but are integrated. Our creative people are now thinking in a broad spectrum way of thinking, rather than in the silos of the media disciplines.”

Ramzi Raad, group chairman and chief executive officer, TBWA Raad

“The agencies are being put under pressure and our margins are suffering because of the pressure, but at the end of the day you have to stand for something and if you stand for quality and a certain standard, you have to find a way or quit this business.”

Raja Trad, chief executive officer, Leo Burnett Group MENA

“Mobile, specifically in our markets, will take up more and more share of the digital spending. The opportunity to connect with people on a 24/7 platform will generate exponential growth, especially [since] we’re starting from such a low base.”

Tarek Miknas, chief executive officer, Promoseven Group

“With the apps model we finally have a way where people can pay one dollar for something. With a paid website you obviously want people to pay but more importantly you want some people to think it is so valuable that they are willing to pay for it.”

Jimmy Wales, Internet entrepreneur, founder, Wikipedia

“I would say 2011 was the year when companies significantly improved their online investments. Better infrastructure means more users in the GCC. North Africa and the Levant also show significant improvements in [online] usage, so ads [will] follow.”

Ari Kesisoglu, Google regional director for MENA

Hussein Friejeh, commercial director, Yahoo Middle East:“The industry is dominated by 30 clients. Out of those 30, you have 10 who spend up to 10 percent of their ad budgets online. Once other clients get onboard, market will jump.”

Ajay Shrikhande, chief executive officer, DDB Gulf:“Perhaps one can compare the advertising industry awards with the air cargo industry awards, and how is the public excited with the air cargo industry awards?”

“We still have high hopes for Syria. It is a big market, a manufacturing market, and we believe that a lot of Syrian manufacturers and services providers will eventually grow into the region, including Iraq and Lebanon.”

Mark Daou, chief operating officer overseas, Rizkgroup Communications

April 14, 2012 0 comments

Feature

Syria rendez-vous with the rebellion

by Executive Editors April 14, 2012

written by Executive Editors

The deep, single boom announces a symphony of staccato gunfire, and the calm spring morning in Syria’s eastern mountains descends into chaos.

Two rag-tag groups of Syrian Army defectors, part of a loose umbrella group commonly known as the Free Syrian Army (FSA) have just detonated a gas canister full of explosives beneath a Syrian army tank which was patrolling outside their village. Having left their hilltop hideouts late the night before, the 11 rebel soldiers are now executing their hastily planned attack. Their payload delivered, the rebels fight their way home beneath airburst anti-personnel artillery and withering fire from the Syrian Army; of the three wounded that day one would later die.

Holed up in a small farm building on a cliff-top near the village of Janoudiyeh, this small group of defectors operating autonomously but in loose collaboration with similar groups in the area, is one of many such units striving to write the next page in the Syrian uprising. Saying they have learned from the mistakes of Homs, where the FSA was forced to make a “tactical withdrawal” after a month-long artillery bombardment, these fighters have taken to the hills, preferring quick surprise attacks over a protracted urban struggle.

But while they may maintain the element of surprise, supplies are scarce. This group relies on FSA comrades in a nearby village to keep them stocked up with food, but on a bad day lunch is foraged from the ground outside: cabbages, greens and spring onions.

A string of government assaults have recently driven the FSA from many of its strongholds, but the group’s fortunes may be on the rise. On Saturday, March 24, FSA chief Colonel Riad al-Asaad joined forces with a unit led by the most senior army deserter, General Mustafa al-Sheikh, to form a united military council.

The FSA needs to move beyond its fractious nature if it is to prove a substantive oppositional force. Foreign states with an interest in seeing the FSA succeed would then find it far easier to supply the weapons and support it with what it desperately needs.

“Given the weapons we have and what they have, we can’t do anything. Of course we don’t want outside interference but if things keep going the way they are then of course I hope that NATO would interfere,” said Lieutenant Mohammed el-Hajj. “Any kind of alliance…let Israel come into the country and it would be better than Bashar al-Assad… At least if they are bombing our children we would know it is not our brothers, cousins, our [own] army bombing us.”

April 14, 2012 0 comments

Consumer Society

For your information

by Executive Editors April 6, 2012

written by Executive Editors

Hello again, Mr. Moto

After 2011’s less robust showing in terms of new car sales — a major economic indicator of consumer confidence — automobiles are again flying off the lots. According to figures from the Association of Automobile Importers in Lebanon, which are compiled from car registration statistics, the sector has seen a 17.7 percent rise in the first two months of 2012, with 3,796 cars sold in the first two months of 2011 and 4,469 new passenger cars sold in the first two months of 2012. Again, Korean brand Kia was the big winner in these new statistics, selling 1,252 new cars, against 938 in the same period last year. Korean models also took second place, with Hyundai selling 702 cars versus 538 in 2011. Third, fourth and fifth in the rankings were Japan’s Nissan, Japan’s Toyota, and rounding out the pack was the US brand Chevrolet.

The power of women

Of the CEO Middle East’s 2012 list of the 100 most powerful Arab women, 12 were Lebanese. The majority of Lebanese entries came from the entertainment sector, with Fairuz, Elissa, Nancy Ajram and Haifa Wehbe all making an appearance, at rankings 13, 41, 65 and 69 respectively. This trend to celebrate women’s roles in the ‘culture and society’ category was apparent across the list, with 43 out of the 100 overall listed being from this background. Other notable Lebanese entries include filmmaker and face of Johnnie Walker’s ‘Keep On Walking’ campaign in Lebanon 2012, Nadine Labaki (14), CEO of Treats Holding (Dunkin Donuts, Semsom) Christine Sfeir (15), and journalist and political analyst Maria Maalouf. The most powerful Arab woman was listed as the United Arab Emirates’ Minister of Foreign Trade, Sheikha Lubna al-Qasimi, for the second year in a row, ahead of Yemeni Nobel peace prize winner Tawakkul Karman in second place.

Organic food takes off

The well-established global trend toward organic foods will soon be reaching new heights, as Abu Dhabi-based carrier Etihad airways announces the introduction of organic produce to its in-flight menu, in exclusive partnership with Abu Dhabi Organics Farms. First class diners will find fresh organic food products on their plates, from eggs to vegetables to honey. Organic products are produced by sustainable farming practices and internationally certified, making them popular with discerning eaters. Etihad has plans to extend the provision of organic ingredients across all cabin classes in the future. The initiative comes after Etihad launched an on-board five-star restaurant service for First class last October, recruiting international chefs.

Superhero Con

The Middle East region’s first consumer convention devoted exclusively to pop culture, comic books and cult entertainment is being held this month, from April 20 to 21 in Dubai. Tickets for the Middle East Film and Comic Con (MEFCC) range from AED 55 ($14) for a day pass to AED 500 ($136) for a VIP festival pass. The festival will feature blockbuster movie previews, gaming and competitions, workshops, panels and Q&As. To promote local talent, artists from all over the region are invited to set up stalls in ‘Artist Alley’ to promote or sell their collections. Areas covered by the MEFCC include science fiction, fantasy, manga, anime, animation, illustration and collectables.

The call of the camel

Demand is growing worldwide for camel milk products, according to Emirati chocolatiers Al Nassma. They launched their camel milk chocolate in August 2011, and it has just been announced that Al Ain Dairy, one of the biggest producers of dairy products in the UAE, will shortly be introducing camel milk ice cream flavored with dates, caramel, saffron and chocolate. The company plans to renovate its facilities at a cost of AED 10 million (nearly $2.7 million) in order to produce the range commercially, according to CEO Abdullah Saif al-Darmaki in UAE daily Gulf News. Camel milk is an essential part of the traditional Arab diet. Research has shown that the milk offers plenty of health benefits as well.Al Nasmaa chocolatiers — which also sells drinks like Camelcinos and Camelattes at its coffee shop in Mall of Emirates — is available in 60 outlets in Switzerland, as well as in Japan, Europe and the Gulf, where the product has proved extremely successful. Global expansion, however, is currently stalled by the EU, which is unlikely to give permission for the export of fresh camel milk until 2013.

April 6, 2012 0 comments

Real estate

For your information

by Executive Editors April 6, 2012

written by Executive Editors

Hyperactivity around the Hippodrome

Solidere, the largest real estate developer in the country, and Minister of Culture Gaby Layoun are getting an earful of objection regarding a decision to dismantle ancient ruins once part of the Roman Hippodrome — to build a luxury residential development on a construction site in downtown Beirut. Layoun dismissed the decisions of three of his predecessors when he gave permission on March 15 for the destruction of the ancient ruins on the site to make way for development. For his part, he said the process would be respectful to archeological interests since it would involve dismantling and then recombining certain walls of the hippodrome to integrate them into the new structure. In response, the Association for the Protection of Lebanese Heritage called for a rally on March 24 near the site to voice their opposition to the destruction of the ancient ruins. The group’s Facebook page says the protest is “to protect the Phoenician port of Beirut, on plot 1398… and work for the reversal of the Ministry of Culture’s decision to allow the ‘integration’ of the Beirut Roman Hippodrome in Wadi Abou Jmil, into a development project, especially because the Hippodrome is on the list of culturally relevant monuments in Beirut.” Other politicians are taking a stance as well. A March 20 statement from the media office of Progressive Socialist Party leader Walid Joumblatt clarified his earlier published statements about the ordeal in Al Anbaa newspaper, placing full blame on Solidere rather than the Beirut Municipality, which is tasked with preserving archeological sites in collaboration with the General Directorate of Antiquities. Former Culture Minister Tammam Salam urged Parliament on March 15 to reject the decision, calling it an “unacceptable crime” against the Lebanese, according to The Daily Star.

Fashionable arrival

While there are currently two “So by Sofitel” boutique hotels globally, the French hotel group, Sofitel, plans to expand that brand to 18 properties worldwide in the next five years, Sofitel CEO Robert Gaymer-Jones told Hotelier Middle East in a March 14 article. “Eventually we’ll have somewhere between 15 and 18 Sos operating around the world in the next five to seven years,” he said. “I’d love to bring it to Dubai, Cairo and other parts of the Middle East. We’re looking at an opportunity in Beirut.” The two existing properties are the original in Mauritius and a property in Bangkok, which featured the design collaboration of Kenzo Takada and Christian Lacroix, respectively. The Lifestyle-hotels heavily depend on a fashion-centered brand identity, where employee uniforms, bath robes and even toiletries like soap are designer products. Sofitel opened 9 more hotels in 2011 and its Bahrain property, Sofitel Bahrain Zallaq Thalassa Sea & Spa, contains the first thalassotherapy (therapy that uses seawater) in the Middle East. After three years of construction work, the company’s Egyptian property, the Sofitel Legend Old Cataract Aswan, reopened its doors in 2011.

Luxury incentives

Adding to the bevy of luxury hotels in downtown Beirut, a new five star hotel has been announced by the Investment Development Authority of Lebanon (IDAL), which gave the project owner, Sabah Barakat, a handy incentive package on March 16, according to Byblos Bank. Barakat, the general manager of Al Bashoura Company, will build a hotel that will hold 153 rooms, 62 suites and 35 apartments, costing $208 million to include retail area, a pool, and a conference room. Since the project will reportedly create 250 jobs and contribute to tourism, the 10-year incentive package will allow the owners to skip paying income tax for a decade while reducing construction fees by half. IDAL expects that close to $1 billion worth of projects will receive similar incentives in 2012.

Shop ‘til you drop

While the external work is already complete on what will be Lebanon’s largest shopping mall, Beirut City Center in Hazmieh, its Dubai-based developer, Majid Al Futtaim, announced that the $300 million development would be complete by early 2013. Originally, the mall, which will contain 200 stores within 60,000 square meters of retail space, was to be completed by this summer. MAF has developed 10 malls in the Arab region, including the United Arab Emirates, Egypt, Oman and Bahrain, and has two more under development in Fujairah, UAE and Cairo, in addition to its first mall development in Lebanon. In the fourth quarter 2011 report by Ramco Real Estate Advisors on the Lebanese real estate sector, it noted that Lebanon has a total of 240,000 square meters of gross leasable area (GLA) within six existing shopping malls and five shopping galleries, but that there is need for more malls outside the capital. There are four malls under construction, which will add another 130,000 square meters of GLA. These are Le Mall Dbayeh, the Landmark in downtown, Beirut City Center and the expansion of Beirut Souks on the North Side.

Investor–friendly rooms

While Saudi Arabia’s Mecca and Medina came in first and second place in a poll of hospitality performance among Arab cities, Beirut came in 16th place. A February 29 report in Arabian Business, based on data from Ernst & Young, showcased the best Arab cities for hotel investment, ranking them by hospitality performance based on occupancy and room rates from the year 2011. Beirut had an average hotel occupancy rate of 57 percent and an average room rate of $220, while the average room yield (the average revenue per room per night) was $126. The report indicated that less Arab visitors came to Lebanon because of political upheavals in the surrounding area. Mecca had an average occupancy rate of 73 percent in 2011, partly due to an increase in religious tourism.

Dubai, which saw an increase in tourists (and 78 percent occupancy rate) in 2011, came in 3rd, while Abu Dhabi ranked 9th place. By January, however, Lebanon’s local hospitality industry had picked up. Hotel occupancy rose by 16 percent compared to January 2011, reaching 60 percent, and the average room rate increased 4 percent to $229 by the first month of this year, compared to January 2011, according to Ernst & Young. The room yield, which shot up 40.4 percent in comparison to January 2011, was the second highest rise in the region after Medina, where it was 114 percent.

Sales slow but values rise

According to figures from the General Directorate of Real Estate and Cadaster, the number of property transactions fell 1.2 percent in January compared to January last year, hitting 5,387 total transactions. It is important to note that this represents a fall of 44.9 percent compared to December 2011 figures. Ninety-seven of the sales in January 2012 were to foreigners, showing a 12.8 percent rise in sales to foreigners compared to January 2011. The value of property sales, however, was up 17.4 percent in January 2012 compared to January 2011, reaching $562.1 million. Newly issued construction permits covered an area of 793,988 square meters in January 2012, up 5.81 percent compared to January 2011, while 61.63 percent of the area which received a construction permit is in Mount Lebanon, according to the Order of Engineers.

April 6, 2012 0 comments

Banking & Finance

Financial quotes of the month

by Executive Editors April 6, 2012

written by Executive Editors

“The idea that ‘drill, baby, drill’ can cure our jobs deficit is basically a joke.”

Paul Krugman, American economist, regarding former US vice presidential candidate Sarah Palin’s statement

“We call on banks to continue stimulating growth in their deposits, even at the expense of slowing growth in profits.”

“The Turkish lira now has a symbol, just like the US dollar, the euro and the yen.”

Recep Tayyip Erdogan, Turkish Prime Minister

“They [the Bahrainis] will pay if there is no race. The money is in the bank already. So we’re not going because we’re going to get paid. That has nothing to do with it.”

Bernie Ecclestone, the Formula One tycoon, defending his decision to go ahead with the Grand Prix in Bahrain in April

“We used to be the people of the Book. Now we became the people of the Facebook. Much better.”

Shimon Peres, Israeli President who recently opened a Facebook page

“The risks of turning away from Greece now are incalculable. No one can assess what consequences would arise for the German economy, on Italy, Spain, the Eurozone as a whole and finally for the whole world.”

“I hope US companies would come. Even the US oil companies haven’t started coming back.”

Abdurrahim al-Keib, Libyan Prime Minister

“Britain seeks to protect Lebanon’s lucrative banking sector from sanctions against Syria, and we will do our utmost to safeguard its credibility.”

Tom Fletcher, British ambassador to Lebanon

“Over the last 12 months I have seen five different managing directors refer to their own clients as ‘muppets’.”

Greg Smith, ex-Goldman Sachs banker, in his resignation letter published in The New York Times

“We do realize that a 25 percent increase on the third salary bracket would not be realistic, but this is our legal right.”

Assad Khoury, head of Lebanon’s Association of Bank Employees

“We received a letter from Exxon on March 5 saying they are freezing the contract with the Kurds.”

Abdul Kareem Luaibi, Iraq’s oil minister after US oil company Exxon infuriated Baghdad by signing a contract with Kurdistan

April 6, 2012 0 comments