Comment

India opens up to Iran

by Gareth Smith
written by Gareth Smith

As President Barack Obama struggles for direction in Afghanistan, the prospect of reconciliation between the United States-backed government of Hamid Karzai and Taliban members has concentrated minds not just in Pakistan, which backs the idea, but also in Tehran and New Delhi. Iran’s deputy foreign minister, visiting New Delhi in early August said the two countries’ views on Afghanistan were “close.”

India is skeptical over Tehran’s desire to phase out US-led Western troops, but both countries want a stable, strong government in Kabul that can contain the Taliban. Iran and India have been wary of Sunni militants in Afghanistan since the US and its Saudi and Pakistani allies fostered a “holy war” against Soviet secularism in the 1980s. But Iranian ministerial visits to India in July and August focused not just on cooperation over Afghanistan, but on also improving economic links.

Iran and India have complimentary energy interests: India, which hopes for a sustained 8 to 10 percent growth despite meager energy resources, has long eyed Iran’s substantial oil and gas reserves — each the world’s second largest. It already imports around 14 percent of its crude from Iran, worth $11 billion annually. Such signs of trade and partnership go down like a lead balloon in Washington, which is pushing for greater isolation of Iran over its nuclear program. Back in 2006, Washington warned it would end nuclear co-operation with India if New Delhi did not vote in the International Atomic Energy Agency to refer Iran to the United Nations Security Council.  Since then, India has reluctantly followed the US lead, despite domestic criticism. Pressure from Washington has intensified under Obama, but so has Indian disquiet.

 Anticipating the latest US sanctions targeting gasoline supplies to Iran, the Indian private sector group Reliance Industries ended sales last year. But this summer New Delhi resumed talks with Tehran over the ambitious “peace pipeline.”  This project had been bantered about for the past decade, though India had dragged its feet under US pressure, pricing disagreements and worries over the transit route through Pakistan. In March the project morphed into an Iranian-Pakistani pipeline scheduled to pump at least 7.7 billion cubic meters (bcm) of gas each year from 2015 to 2040. Renewed talks to extend the pipeline to India show New Delhi is still hungry for what Iran claims would be 55 bcm of natural gas annually.

In return, Iran wants Indian investment in its vast but undeveloped South Pars gas field, and has targeted the state-owned Oil and Natural Gas Corporation Videsh (OVL) and the privately owned Hinduja group. Short of capital thanks to Western sanctions, Tehran needs some $200 billion to increase gas production from 0.6 bcm per day to 1 bcm by 2014. In August Iran stressed its desire to boost bilateral trade between the two countries from its current $15 billion, emphasizing India’s role in developing Chabahar port in Iran’s Sistan-Baluchestan province, which New Delhi sees as a major trade route that bypasses Pakistan into Afghanistan and central Asia. Iran seeks to raise the port’s annual capacity from two million to 12 million tons.

Chabahar is probably now the litmus test of Indian-Iranian relations, as Tehran may link Indian participation to wider co-operation. New Delhi has already helped finance a highway from Chabahar to Milak, on the Afghan border, where there is a crossing to Zaranj, in Afghanistan, to which India has laid a 213-km road from Dilaram, a major Afghan transport hub.

India is keen to develop the potential of this route. There is even speculation over an undersea gas pipeline to India, bypassing Pakistan, to supply Iranian and Turkmen gas.  Fresh Indian investment into Iran may irritate the US, but New Delhi cannot ignore new trade patterns in central Asia that are giving China access to Siberian timber, Mongolian iron ore, Kazakh oil, Turkmen natural gas and Afghan copper through roads, railways, pipelines and the Pakistani deep-sea port of Gwadar.

Gwadar, constructed with Chinese assistance and just 72 kilometers from the Iranian border, gives Beijing an economic edge over India and a military vantage point to monitor the US navy in the Persian Gulf and the Indian navy in the Arabian Sea.

Without access to Iranian and Turkmen gas, India will be short of energy. Hence New Delhi has reiterated its support for diplomacy over Tehran’s nuclear program. How all this squares with tighter US sanctions — much less US or Israeli air-strikes — remains to be seen.

GARETH SMYTH is the former Tehran correspondent for the Financial Times

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Society

Risk it

by Emma Cosgrove
written by Emma Cosgrove

Beirut has the unique ability to bend, shape and mold brand identity to fit its flamboyant clientele. When Hermes opened it doors in Beirut Souks, the brand’s tradition and timelessness suggested that it might not be as susceptible to the same affection for flash to which so many fall prey. But, once again, the city proved that few are immune to its call to opulent arms.

Never mind that the abounding platform stilettos sunk straight into the grassy sod laid especially for the opening on Hermes’s corner of Marfaa Street. Never mind that the generator powering the crane swinging an angelic dancer above the crowd was so loud that it drowned out the music played for the spectacle. And never mind that the restricted entrance and exit, due to Prime Minster Hariri’s presence, meant that the tree-enclosed soiree was packed like a can of extremely expensive sardines.

The July 30 opening of the Hermes boutique was an example of brazen one-upmanship that we all should have expected.

But the sheer scale of it all, the extravagance, the excess, and the obvious staggering cost begs the question: what happens after the party? When the guests have gone and Hermes’s executives go home to Paris, who will be minding the store and what happens if the worst comes around to downtown Beirut again?

Why would Hermes, and all the other luxury brands invading downtown of late, take the risk of having to close a store if Lebanon’s cancerous instability comes out of remission?

They do it because the risk is not their’s to take.

Most of Beirut’s monobrand luxury boutiques are franchises, Hermes included. This means the location, and entire inventory of the store, is financed by the local franchise partner. Every item is bought and paid for before it hits the floor, which is why many developing markets, often being franchise-heavy, feature products at a significant mark-up.

So if any of downtown’s gleaming luxury palaces were forced to close their doors, it is local companies who would lose, with the brand escaping conflict with nothing more than a PR scratch. This is not to say that the embarrassment and public relations snafu of closing a store means nothing to an industry whose value is rooted in image. Luxury brands care what happens to their products, and especially their name.

On the day of the opening, Hermes International Chief Executive Officer Patrick Thomas told Executive that he chose Galop SAL as Hermes’s franchise partner out of many interested parties for its “long term” vision and singular focus. Michele Garzouzi, Galop’s president, said that she was not interested in offering, as many regional luxury franchises do, a smattering of trendy items and iconic pieces. She offered the full line and it nearly sold out in the first weekend.

And though her savvy buying strategy and dedication to Hermes — Galop’s only luxury brand — is proof of her long-term thinking, she has no contingency plan for Hermes’s fate if a conflict should crop up.

“You cannot plan for it really,” said Garzouzi. “When you have such an unstable situation you can’t really have a ‘Plan B’.”

Garzouzi is not alone in knocking on wood and hoping for the best; everyone hopes Lebanon will have no need for contingencies. But frankly, we should all stop being so grateful that these luxury titans are opening in our tailor-made shopping havens. We’re spending the money and taking all the risk, so bring on the absurdly extravagant parties downtown — we’ve earned them.

 

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Society

The East Moves West

by Paul Cochrane
written by Paul Cochrane

Labeling this region as the “Middle East” or the lesser used “Near East,” is standard practice in the West, but the region can equally be called “West Asia,” the opposite end of a vast landmass that spreads from Vladivostok and Shanghai all the way to the Bosporus and the Suez Canal. This designation makes sense given the area’s historic ties and the ancient Silk Road trading routes.

Today there is a new Silk Road, with flourishing two-way traffic between the rest of Asia and the continent’s eastern end, particularly Gulf Cooperation Council (GCC) countries and Iran. In Geoffrey Kemp’s book “The East Moves West,” he sets out the case for this burgeoning relationship and where it is likely to go. Kemp, an American foreign-affairs think-tank director, adeptly steers the reader through the ties that bind Asia together, from the geo-strategic importance of Central Asia to the big players: China, India, Pakistan, Japan and South Korea, covering economics, energy, politics, military ties and infrastructure projects. 

It is a relationship that is clearly centered on energy supplies, with some 40 percent of China’s oil coming from the GCC, India receiving 45 percent of its oil from the Middle East, and Japan reliant on the region for 90 percent of its oil. Such reliance on the region’s resources has resulted in mutual dependence.

With Eastern economies in ascendancy while the West hobbles along, this relationship is set to flourish, with significant economic and political ramifications. Energy dependence on Iran, for instance, has been crucial in allowing Tehran to survive the economic sanctions imposed by America and Europe to curb its nuclear program.

The big question, as Kemp sees it, is whether Eastern Asia’s role in the region will grow beyond the traditional buyer-seller relationship. Economically, it has started to change over the past five years, with Asian countries inking contracts worth $500 billion for infrastructure projects in the Middle East, while the GCC has invested more than $250 billion in East and South East Asia. Both East and West Asia want more.

Iran and Saudi Arabia have adopted a “look east” approach for market growth, while New Delhi considers the GCC, to quote India’s former commerce minister, “as part and parcel of India’s economic neighborhood.” The statistics only reinforce this. For India, the economic relationship with the GCC is more important than with the European Union, the Association of Southeast Asian Nations and the United States, totaling $86.9 billion (excluding oil) in 2008-2009.

The UAE is India’s jewel in the GCC crown, the country’s second biggest export destination and the Emirates’ largest importer, accounting for a third of its trade in the Middle East. With Indians making up 33 percent of the UAE’s population and 50 percent of its workforce (of which 25 percent are unskilled workers, 50 percent semi-skilled and 25 percent professionals), it’s no wonder the UAE labor minister said in 2007: “God forbid something happens between us and India and they say, ‘Please, we want all our Indians to go home’… our airports would shut down, our streets, construction…”

With the US flailing in Iraq and Afghanistan and its credibility shot in much of Asia, East Asia seems set to be the new player at the table. But so far the Asian nations have largely refrained from the political arena of the region’s western extremity.

As Kemp notes: “How long they can sustain their hands-off approach is questionable if…they get drawn into the messiness of Middle East politics at a time when the US becomes disillusioned by the burdens of hegemony.”

There are a lot of “ifs” in the book, but given all the certainties proclaimed by Washington of late in its future prognosis for the region, Kemp refreshingly gives plenty of room for thought about the potentials of the new Silk Road.

 

 

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Society

Putting the ‘sport‘ back into SUV

by Executive Staff
written by Executive Staff

Ever since the Porsche Cayenne debuted in 2003, it has faced a tough question: how to hold its niche in the luxury SUV market without jeopardizing the character of the Porsche brand.

Most critics and drivers agree that in terms of drivability and comfort, the Cayenne succeeded in meeting the public’s expectations. But seven years later, even though the Cayenne is now one of the company’s top-selling vehicles it still stands out as something of an anomaly in the Porsche family — like the one black sheep in a herd — and the company is looking for ways to bring it deeper into the fold. The new generation of Cayennes that entered the market this summer shows how Porsche plans to streamline this transition.

The bodywork of the Cayenne and Cayenne S Tiptronic, Cayenne Turbo, Cayenne Diesel and Cayenne S Hybrid all show noticeable development and look more in line with the Panamera — Porsche’s first four-door luxury Sedan — than their progenitors in the Cayenne line. The bodywork has taken a more forward-leaning, muscular design, incorporating elements of a sports car into what has otherwise been a utilitarian vehicle. 

But the changes to this new generation of Cayennes are not just cosmetic — far from it, in fact. The specs for the new Cayenne read like a user’s manual for the Hadron Collider: “Tiptronic S automatic transmission,” “Auto Start Stop,” “recuperation of the on-board network” and “variable overrun cut-off” are but a few of the highfalutin features the Cayenne boasts.

So what does this complex jargon mean when it comes to performance? In industry terms, 23 percent higher fuel efficiency than that of earlier generations of Cayennes. To put it colloquially: more bang for your buck. Like a lot of auto manufacturers these days, Porsche has enrolled itself in a serious weight-loss regime. They’re trimming excess mass wherever it can be found, shifting to lighter-weight materials — carbon fiber in particular — and pioneering intelligent technology to capture energy, conserve expenditure and transfer power to rechargeable sources. That process has shaved the new generation of Cayennes down by almost 200 kilos.

Easy on the gas

Fuel economy is particularly an issue as Europe prepares to begin enforcing stringent CO2 emissions caps and the United States mulls over its own fuel economy standards. Porsche’s response to this is the upcoming Cayenne S. Hybrid, the company’s first fusion gas-electric vehicle. In terms of mechanics, the company had been at pains to draw attention to its Tiptronic 8-Speed Automatic transmission, available in two of the new Cayenne models. The tiptronic transmission operates in generally the same manner as an ordinary automatic transmission, but offers the driver a manual override feature to force-change gears on their own. This gives the driver control over faster acceleration, engine breaking, gear holding going in and out of curves, downshifting before passing or early upshifting for cruising. Veteran Porsche drivers may wonder why the new Cayennes don’t include the dual-clutch transmission of the Carrera and Panamera, which has proven a favorite feature among drivers; the company claims that the dual clutch module does not fit size-wise with the Cayenne’s mechanical make-up.

Tardis effect

The new Cayennes are only slightly larger, but there’s a noticeable difference in space from inside the vehicle. A number of subtle interior adjustments, including a slight tip to the angle of the passenger seats, gives a little more legroom in the already ample interior.

Do the new generations fundamentally redefine the model’s personality? No, probably not. But they do suggest a clear direction that the Cayenne, and Porsche in general, is taking. The new line is increasingly efficient, and has taken notes from other Porsches from both ends of the spectrum, adding subtly to drivability, luxury and power. While priority has clearly been given to a higher standard of fuel economy, it is also clear that Porsche doesn’t want to lose touch with its sports car roots, and is moving forward with a clear vision of a unified image for all its cars, whether they be SUV, sedan or sport.

 

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Society

Cash Stash

by Sam Tarling
written by Sam Tarling

I was born a collector,” says Abdo Ayoub, the man who has put together the world’s largest collection of Lebanese Lira notes. Since 1985 the former Sleep Comfort co-owner has collected more than 500,000 individual banknotes, all issued as legal tender in Lebanon between 1920 and the present day.

As a youngster he hoarded his weekly Tintin newspaper comics before moving onto stamps, filling some 800 albums. Ayoub also holds one of just 23 complete Michelin Guide collections, dating back to 1900 and including an ultra rare edition issued by US military intelligence in 1939. The last full collection sold for 60,000 euros.

Valuing Ayoub’s cash cache would be a mammoth task, but with some of his more rare notes worth more than $15,000 alone, the figure is likely to be staggering.

This decidedly Lebanese collection comes from surprisingly cosmopolitan sources, including archives at the Banque du France, auction houses in London and paper money conventions in Italy and Belgium.

The majority of the collection is carefully catalogued and stashed in neat boxes around Ayoub’s cavernous library. Not content with just one example of each of the lira’s many manifestations, the consummate collector has hundreds of each, preserved sequentially in neat display books. Dusty stacks of notes still lie on the library floor, awaiting their carefully catalogued home.

Although the most recent addition arrived just a month ago, Ayoub says that after 25 years he’s winding down his collecting and looking to sell some 15,000 of his rarest specimens to a bank or museum.

One hole remains, however: a 1920 LL100 note, worth around $100,000 today due to its immense rarity. “I don’t think we’ll ever find that one,” says Ayoub. “It’s already 90 years ago.”

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Finance

No change at the top

by Emma Cosgrove
written by Emma Cosgrove

2010 net profits and growth

First half 2010 financials from Lebanon’s Alpha Banks

Lebanese alpha banks continued to gain profits and assets in the first half of 2010 with Bank Audi maintaining its lead across the board. But there have been some notable shifts among the rankings.

In terms of assets, Fransabank passed BankMed in the last year. The former’s assets grew to $11.5 billion, surpassing BankMed’s $11 billion. This step up in the assets race also shows in Fransabank’s lending figures, which jumped above Banque Libano-Francaise since this time last year, moving the bank from sixth largest Lebanese lender at the end of June 2009 to currently place fifth. 

In terms of customer deposits, SGBL regained its 10th place medal from BBAC after a year outside the top 10 by a hair’s breadth, with the bank’s customer deposits growing 23.87 percent year-on-year to reach $3.6 billion, beating BBAC’s 10.5 percent growth and $3.4 billion in deposits.

At the top of the profits podium for the first half of 2010 is Bank Audi, after having lost the top spot to BLOM at the end of 2009. Audi regained its former glory by growing profits by 21.45 percent, reaching $161.4 million. Net profits growth among the entire alpha group brought out some other surprise swells, with Lebanese Canadian Bank posting 84.74 year-on-year percent growth, SGBL at 79.05 percent year-on-year growth, Bank of Beirut at 65.26 percent, Fransabank 54.69 percent and Banque Libano-Francaise at 42.86 percent.

The assets of the entire commercial banking sector grew to $122 billion by the end of June 2010, representing a year-on-year increase of 17.4 percent.

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Economics & Policy

For your information

by Executive Editors
written by Executive Editors

A curb on oil exploration

The King of Saudi Arabia has made a royal decision to halt further exploration of oil and gas in the world’s largest crude exporting nation. The announcement was reported in early July by the official Saudi Press Agency  and quoted King Abdullah bin Abdul Aziz on his way to a cabinet meeting as saying: “I told them that I have ordered a halt to all oil explorations so part of this wealth is left for our sons and successors, God willing.” A senior ministry official quoted by Zawya Dow Jones later explained that the statement was not an outright ban on further exploration, but rather was intended to express that future exploration would be carried out more “wisely.” Saudi Arabian oil reserves are the largest in the world and stood at 260.1 billion barrels at the end of 2009, according to the state-run Saudi Aramco.

IFF blasts Lebanon’s budget

The Institute of International Finance (IIF), the global association of financial institutions, has criticized the 2010 budget proposal and suggested that Lebanon has missed an opportunity to improve its public finances. “The 2010 budget does not aim for a significant primary surplus that could have been achieved under the continued strong economic growth and implementation of the long-delayed reforms. Avoiding complacency and building consensus on reforms combined with continued stable political environment could sustain rapid growth beyond 2010 and bring down government debt to more sustainable levels,” the IIF stated in a country report on Lebanon. The report cautioned that the favorable economic conditions of rapid growth, low global interest rates and abundant liquidity in the banking sector were not likely to continue in the medium term. The IIF also advocated raising the Value Added Tax (VAT) from 10 percent to 12 percent, as well as removing exemptions on precious and semiprecious stones, and on yachts and other excursion or sports sailboats that currently do not pay VAT.

Consumer confidence confusion

The three most trusted indices measuring consumer confidence in Lebanon show differing results for the second quarter of 2010, according to BLOM Bank. The first of the these studies, conducted by Bayt.com, reported that Lebanon’s consumer confidence index (CCI) increased by 7.6 points in quarter two of 2010, leading the region in growth. According to the same survey, consumers in the UAE, Kuwait, Saudi Arabia, Egypt and Bahrain are losing confidence in their countries’ economies and their own earning and spending futures. Qatar and Morocco showed modest growth in their indices. The other two surveys, conducted by Ara’a Research and MasterCard, both showed a drop in consumer confidence in Lebanon. Ara’a’s index saw Lebanon drop 15 basis points to hit its lowest level since October 2009. MasterCard’s study showed an even more dramatic plunge, with a 30.74 percent year-on-year drop in consumer confidence for the first half of 2009. MasterCard’s index also demonstrated pessimism in the other Middle East and North Africa countries, with the regional index dropping 7.11 percent. BLOM’s analysis of these contradictions led to the conclusion that CCI studies are highly subjective and should be observed with caution, as the size and socio-economic makeup of the sample can have a significant affect on the outcome.

Lebanon tops FDI-to-GDP table

Lebanon attained the highest ratio of Foreign Direct Investment (FDI) to GDP in the Arab world last year, according to recent figures issued by the Arab Investment and Export Guarantee Corporation, a body that provides insurance coverage and export credit. The figures show that FDI to (estimated) GDP in Lebanon in 2009 reached 14.3 percent, up from 12.2 percent in 2008. The total value of FDI in Lebanon during 2009 also increased 33 percent on 2008, coming in at $4.8 billion. The figure also constitutes the fifth highest FDI by value in the Arab world during 2009, in contrast to aggregate figures that saw FDI in the Arab world experience a 15 percent year-on-year decline. FDI inflows to Lebanon accounted for 6 percent of the total $80.7 billion dollars registered. Saudi Arabia took the lion’s share of FDI last year, making up 43 percent of the total at $35.5 billion dollars.

No national future for pipe firm

Future Pipe Industries sal, the Lebanese subsidiary of the Dubai-based Future Pipe Industries group, announced that it had closed its operations in Lebanon. The company, which produced pipes and rubber gaskets, was established in 1995 by Lebanese businessman Fouad Makhzoumi and had an annual turnover of $830 million in 2008. Future Pipe Industries was the largest private sector employer in the Akkar region with hundreds of employees. The company attributed its decision to close up shop to adverse operating conditions in Lebanon. The firm still has 10 other plants on five continents and employs some 4,500 people. It derives 76 percent of its sales from the Gulf Cooperation Council.

Lebanon and Syria’s bilateral bonanza

In another chapter of the Treaty of Brotherhood, Cooperation and Coordination signed in 1991 under then president Elias Herawi, Lebanon and Syria have embarked on a new set of agreements that come on the back of Lebanese Prime Minister Saad Hariri’s most recent visit to Damascus. The 18 agreements also took place amid the backdrop of heightened tensions over the Special Tribunal for Lebanon, which according to Hezbollah’s Secretary General will implicate members of the party and not, as was originally expected, Syria. Hariri’s Syrian counterpart Mohammed Naji Otary stated: “What links Syria and Lebanon is stronger than bets of enemies and conspirators.” Hariri was quoted by the agency as saying: “The interest of Syria and Lebanon comes before everything…. we have to prepare for the next stage through achieving economic rapprochement to strengthen our economy in the face of the global financial crisis and other future challenges.” The agreements themselves are comprised formal economic sector cooperation documents, memorandums of understanding, executive programs and protocols and cover the fields of economy, trade, education, agriculture and tourism among others, and are signed on the ministerial level, according to the Syrian state-run news agency SANA. 

The countries’ respective finance ministers inked a protocol agreement on avoiding double taxation between the two nations, which also covered ways to address tax evasion in relation to income taxes. The ministers also signed an agreement on encouraging investment and memorandum of understanding on customer protection along with their counterparts from the respective ministries of economics and trade. A total of four agreements were also signed by the agriculture ministers of the two nations, which will unify regulations for licensing and importing of veterinary medicines and agricultural pesticides, as well as covering animal and plant protection. In addition, the two education ministers signed an executive program and two agreements covering various levels of education and research. The ministers of culture and tourism also followed suit, inking a three-year executive program and a further cooperation agreement respectively. Not to be outdone, the ministers of health, transport, justice, interior and environment also approved several agreements. Minutes of the meetings of the joint ministerial and technical committees who met after the accords had been signed show that they agreed to establish mechanisms to form a joint committee for foreign and economic affairs, implement a future security and defense agreement, link the two countries by rail through a Tripoli-Homs-Riyaq-Damascus railways and establish a joint border industrial zone, in addition to demarcating borders between the two nations, and the creation of a Syrian-Lebanese Business Council. The Syrian premier also stressed that the establishment of a high-level “cooperation committee” tasked with overseeing the implementation of a free trade agreement between Lebanon, Syria, Jordan and Turkey, was of the utmost importance. “We want the Syrian-Lebanese relationship to be an example for the joint Arab market, aiming to widen this cooperation to include other Arab countries,” Hariri added.

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Real estate

Hilton on ice

by Executive Editors
written by Executive Editors

Lucas William, tapped to be the director of operations at the Hilton Beirut, is not talking about the elephant in the room. Indeed, most of the affiliated parties are keeping mum about the eight-storey, 158-room hotel in Minet a-Hosn that stands ready but is suspiciously closed. The hotel’s awkward silence in the midst of a buzzing touristic hotspot has lead many a curious mind to speculate what went wrong.

Davis Langdon Lebanon (DLL), the hotel owner’s representative during the construction phase, which ended in January of 2007, abruptly left the Hilton party when its contract was up. A spokesperson from the group declined to comment, instead referring queries to the “sole owner,” Nadhmi Auchi, chairman of General Mediterranean Holdings (GMH) — an expansive holding conglomerate made up of 120 companies in 28 countries, with more than 11,000 employees and assets worth over $4 billion. However, the Iraqi-born businessman — most well known in Lebanon for his Dbayeh landmark, Le Royal Hotel, and its Watergate theme park – also shied away from an interview with Executive after originally accepting the proposal in early July. However, Nizar Younes — the original owner of the central district land behind Beirut Souks and president and founder of Butec engineering firm, which constructed the Hilton — and the commissioned architect, Younes’ daughter, Hala Younes of Atelier d’Etudes techniques et d’Architecture Beyrouth (AETA), responded to interview requests regarding the five-star hotel’s nearly three-year delay and the tangle of legal disputes.

In 2005, Nizar says Auchi was brought in as a partner in a holding company Nizar had started, called Sharikat Al Ikarat Wal Abniat (SIWA), which owned the Hilton property in full. As construction of the $70 million hotel project neared the halfway point, Nizar says he needed extra capital. He and his brother Issam retained a 49 percent share of SIWA (29 percent and 20 percent respectively), and sold 51 percent to Auchi, making him the majority stakeholder.

Auchi heralded his new stake in SIWA in GMH’s 2005 chairman’s statement, which read: “Through subsidiaries we own controlling interest in the Beirut Hilton, located in the center of the city, which is in the final stages of construction and is expected to be ready by the end of 2006.”

Nizar claims that Auchi has the master key and is leaving the Hilton locked up until he can purge the Hilton’s management, obtain full ownership and have his Le Royal team manage the hotel instead.

On July 12, the International Court of Arbitration in Paris, under the International Chamber of Commerce, ruled that Auchi must pay compensatory damages for delaying the hotel’s opening, “which was estimated by the court for the whole period to be… around $40 million dollars,” said Nizar.

In 2007 Nizar says he sold Auchi his 29 percent share, but has yet to be paid in full, with this dispute now the subject of a pending legal battle in Lebanon in the Jdeideh Court of Arbitration.

Issam Younes has held on to his 20 percent share, despite several takeover attempts by Auchi.  AETA’s Hala Younes says that her firm’s role in the project has dragged on for roughly 10 years, starting from the original contract signed with Hilton in 2000, to court arbitration in Lebanon with Auchi over lack of payment. AETA finally received full payment in 2009. 

Hala claims that the GMH chairman was in agreement with the original layout for interior design, but later didn’t pay in full, claiming that the result deviated too much from the original agreement. 

Refuting the rumors

Among the more persistent rumors regarding why the Hilton has remained closed is that it failed to meet Hilton’s construction standards. However, on Feb 21, 2007, Hilton International headquarters sent a letter of approval to the architect’s Verdun office, confirming that the hotel’s physical structure, surfaced in acid-etched glass to protect it from the sea climate and featuring custom-made interior design, was up to par. According to Hala Younes, Solidere signed the occupation permit in January 2008, verifying that the building meets legal standards. The hotel still doesn’t have a legal permit to operate, however, as SIWA has not signed it.

If, or when, the new Hilton Beirut does open, the Lebanese can be thankful that its delay was down to simple, old fashioned business wrangling, rather than an omen of imminent war like its ill-fated predecessor; the original Hilton was due to open one day before the start of the Lebanese Civil War in 1975.  

Nizar claims that Auchi has the master key and is leaving the Hilton locked up

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Real estate

For your information

by Executive Editors
written by Executive Editors

Soaring property lending cause concern

Due to record high property sales in Lebanon during the first quarter of 2010, some analysts are urging caution for builders, developers and banks as easy credit increases in parallel to property prices.  There was a total of $2.1 billion in sales in the first three months of the year, which is a 41 percent increase compared to the same period last year, with the number of transactions reaching 22,000, according to the latest report from the Directorate of Real Estate. It is not the amount of total residential lending, but rather the sharp rise in lending that worries International Monetary Fund mission chief for Lebanon, Andreas Bauer. Speaking at the presentation of an IMF report on Lebanon in mid-June, he said: “If credit growth accelerates further, the authorities should consider capping and gradually phasing out incentive schemes that provide exemptions to reserve requirements.”  The pricing boom, driven by demand not short supply, shows no signs of plateauing, with most of the 350 new buildings to be delivered to the market by the end of 2010 valued at a minimum of $3,500 per square meter, according to a June study by Ramco, a Lebanese real estate service company. Both the Central Bank Governor Riad Salameh and Deputy Governor Saad Andary put down fears of a housing bubble. Andary told Bloomberg in June: “Out of each $100 spent on property acquisition, not more than $16 to $18 is financed by banks. The rest is hard cash, mainly from Lebanese from abroad. We have no fear from a housing bubble.” At the end of last February, loans to the sector totaled $12.2 billion when combining loans for construction, housing and rent. Pragma Group bets on Dubai

Betting on economic recovery in Dubai, the Lebanese firm Pragma Group announced in mid-July its plan to pour a total of $100 million into a major landmark in Dubai Media City, the Palladium, which opened last year. The family-run firm has already acquired the land and the building from a group of Emirati institutional investors, but won’t reveal the exact cost for the multi-functional venue, used mainly to host musical events and large gatherings such as weddings. Joe Tabet, chairman of Pragma Group, has plans to transform the Palladium into an all-inclusive entertainment center that includes a boutique hotel and several restaurants. He told The National: “A certain category of people… are not finding what they want in Dubai. They still travel to happening cities like London, New York, Kuala Lumpur to entertain themselves.” In Dubai, the group already owns The 400 Club and the Cavalli Club, and has restaurants and properties in Saudi Arabia, Syria and Jordan, in addition to Lebanon and the UAE.  

Jordan’s real estate picks up

 For the first time since the end of 2008 and the onset of the financial crisis in the region, the real estate market in Jordan has recorded a quarterly growth in the residential leasing and sales sector. Asteco, the Dubai-based property consultancy, released its ‘Jordan Report Q2 2010’ last month, showing that rents for three bedroom apartments increased 4 percent on average, while one-bedroom rents remained static in comparison to the first quarter of this year. The residential property market experienced a 1 to 3 percent rise in sales, depending on the location. The most expensive areas, Abdoun and Um-Othainah, each grew 3 percent in the second quarter, commanding up to $1,400 per square meter. Hussein Safadi, general manager of Asteco, revealed that the marginal increase was due to improved loan packages from banks. “In addition, improved and flexible mortgage facilities have gradually become available to individuals,” he said. The main reason for overall weak demand, he added, was high construction costs. Office rents have shown a quarterly decrease in rents of between 1 percent and 3 percent, depending on location.

Syrian hotel rooms set to double

By 2015, the number of hotel rooms available in Syria will almost double to 6,000, boosted by the entry of international chains such as Mövenpick, Kempinski and InterContinental in the next two years, according to a report by Colliers International.  Damascus already boasts a Sheraton, Rotana, and Four Seasons, and Syria saw its tourism sector increase by 12 percent last year, with most tourists coming from Lebanon and the wider Middle East. The report stated that more foreigners are visiting Syria due to its fairly peaceful economic and political situation, adding that it is one of the few countries in the region that skipped through the financial crisis with relative ease. The government’s go-ahead to provide accommodating infrastructure is also part of the reason for the increase. Construction projects are taking place inside and outside of the capital. In Aleppo, for example, Accor will open and run two hotels, the four-star Novotel and the three-star Ibis, in the Taj Halab mixed-use district. Taj Halab is a 200,000 square meter real estate development, operated by Bena Properties and expected to finish in 2014. In addition to the Sheraton, Aleppo also is home to the Coral Hotel & Resort. The Martini Aleppo, another hotel by Emirates-based Coral, is already being built. The report concludes that, in the short to medium term, Damascus will only have a 70 percent increase in hotel rooms, but to satisfy demand predictions, the number of hotel rooms should increase by 90 percent, which will take more than two years. The report also claims that the capital’s hotel occupancy rate was 72 percent in 2009, and predicts that religious tourism will double in 2010.

Live the eco dream in downtown

The Lebanese development group Benchmark held a groundbreaking ceremony on July 16 at the site of their new residential tower, Developers are working on plans for an eco-friendly  130-unit tower in the Minet al Hosn area of Beirut’s central district. ‘Beirut Terraces’ will be designed by architects Herzog & de Meuron, and is set to include landscaping and open spaces weaved into each uniquely-dimensioned floor. The website for Beirut Terraces claims that the tower incorporates intricate, energy-saving systems that take advantage of the city’s climate. The thick floor plates in the 25-storey building store heat during the day and release it at night, reducing the need for air conditioning. Besides the architect, the other partners in the project are Bank Med and Khatib & Alami engineers. Bassim Halaby, the chief executive officer and chairman of Benchmark, said that 20 percent of the building has already been snatched up in pre-sales and that 70 percent of the buyers were Lebanese. “We view ourselves as equally accountable toward protecting the environment and we are therefore committed to creating a sustainable development,” said Halaby, adding that space is selling for less than $10,000 per square meter. According to Zawya the total project is worth $500 million. Tower owners Benchmark, founded in 2006, own residential assets of about $1.4 billion according to World Arab, spread out between Yemen, Saudi Arabia, Morocco and Lebanon.

Abu Dhabi’s urban policy redirected

Middle income households in Abu Dhabi will be the beneficiaries of a new housing policy, which forces new residential districts exceeding 75,000 square meters to allocate one fifth of planned housing units to this group. The emirate’s Urban Planning Council (UPC) announced in July that rents for various housing structures within the targeted districts, from studios to three bedroom apartments, will be limited to 35 percent of a family’s verified middle income. To qualify as such, the income ceiling has been set at $68,608 per year. The government policy, effective immediately, does not apply to villas and town homes within these planned developments, the earliest of which will be available to the market within the next two years. There are an estimated 73,000 new homes scheduled for Abu Dhabi’s market by 2013, meaning 15,000 will be reserved for this income group, according to The National. Falah al-Ahbabi, UPCs general manager, said “We consider the provision of quality affordable housing to retain and attract skilled professional workers as an important social component in the long term strategic development of Abu Dhabi.”

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Banking & Finance

Money matters bulletin

by Executive Editors
written by Executive Editors

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Saudi Arabia to spend $100 billion on transport

Saudi Arabia is set for a $100 billion infrastructure surge, which will see 19 transport projects developed over the next 10 years. Five ports, three airports, three railways, three major highways, five logistics centers and a number of new economic cities will be developed by The Saudi Arabian General Investment Authority (Sagia). Saiga also plans to raise the capacity of Saudi ports and attract new port operators; the Jeddah Islamic Port alone has the potential to increase its capacity by around 35 percent. Meanwhile, the expansion of the Jeddah and Medina airports is underway, and the North-South mineral railway, Jeddah Metro, Mecca Monorail and the $7 billion Hamarain high-speed railway are expected to be finished by the end of 2010.

New Egyptian-Syrian bank

Banque Misr has announced that it will open a new subsidiary in Syria by the end of 2010, and will start operating in early 2011 with a capital of $220 million. Mohammad Fayed, senior vice president at the commercial bank, which is Egypt’s second-largest by assets, revealed that the new bank will be named Banque Misr Syrie. The Egyptian minister of trade and industry stated that 60 percent of the new bank will be owned by Banque Misr and 10 percent by Banque Misr Liban, with 25 percent of the shares listed on the Syrian bourse and an additional stake made available to Syrian businessmen. The Central Bank of Syria raised the minimum capital requirements for conventional private banks in January from 1.5 billion Syrian pounds ($32.9 million) to $219.8 million, and capital requirements at Islamic banks from $109.9 million to $329.7 million.

Morocco signs cooperative agreements with France and AMF

In July 2010, Morocco signed 11 cooperative agreements with France, worth some $188.3 million. The funds will be allocated to the development of the nuclear energy sector and the improvement of social welfare, fisheries, water and transport sectors. In addition, Morocco signed a 2 billion dirhams ($220 million) financing agreement with The Arab Monetary Fund (AMF) to expand the country’s financial and banking system. This arrangement aims to revive capital markets in the country and provide better conditions for banks to offer financial services.  The AMF was established in 1976 in Rabat with the objective of supporting the economic and financial system in the Arab states in order to encourage trade between them.

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