Economics & Policy

How peace pays

by Josh Wood
written by Josh Wood

For the past 32 years, UNIFIL — the United Nations Interim Force in Lebanon — has been a thread in the fabric of life in Lebanon. While most mentions of UNIFIL relate to Lebanon’s numerous conflicts with its southern neighbor and violations of the UN-mandated Blue Line that ostensibly marks the border with Israel, there is another face to the peacekeeping mission: its economic impact.

Over the past year alone, UNIFIL spent $32 million on contracts with local Lebanese firms, according to UNIFIL spokesperson Andrea Tenenti. UNIFIL’s nearly 13,000-strong military force and civilian staff also pump millions of dollars into the local economy through privately purchased goods and services – and the mission says that it is the largest single employer of Lebanese citizens in the south. In addition, in an effort to improve its public image, the mission invests millions of dollars every year in building infrastructure for local communities and offering direct aid to the population of South Lebanon, which is among the poorest areas of the country, having endured the 22-year-long Israeli occupation.

While UNIFIL is by no means an economic savior for the south, it is certainly a crutch. Its continued presence has provided a steady stream of income for the local economy for more than three decades, with the amount of money being spent soaring in recent years as troop numbers have grown. After Israel’s 2006 war on Lebanon UNIFIL rapidly began increasing its personnel numbers, from less than 2,000 before the hostilities to around 11,500 military personnel by the end of 2006.

These new troops were not cheap: UNIFIL’s 2006 to 2007 total budget topped $495 million, a 543 percent rise from the $91 million spent a year earlier.  For 2009 to 2010, the appropriated budget reached nearly $590 million.

The procurement spending spree

Most of UNIFIL’s budget is given to countries that contribute troops to the mission, money sent to cover the salaries of soldiers. While the Lebanese economy sees some of this money later through troops’ private spending, it is UNIFIL’s procurement budget for goods and services which offers the largest cash injection into the Lebanese economy.

Items on UNIFIL’s yearly procurement budget include everything from condoms to laptop computers — estimated to cost UNIFIL $136,763 and $138,500 respectively, in 2009. The most costly this year — and nearly every year — is food rations to feed UNIFIL staff and soldiers, with an estimated tab of $18.2 million.

In filling its procurement needs UNIFIL turns to companies around the world, but has, over time, shown a preference for awarding contracts to Lebanese businesses.

“As a rule, [UNIFIL] generally tries to buy most things from Lebanon — if you can find it here of course,” said Timur Goksel, a longtime UNIFIL spokesman who now teaches at the American University of Beirut.

This year, 160 Lebanese vendors and firms were awarded roughly $33 million (40 percent) of the total anticipated procurement budget of $82 million, according to Executive’s calculations.

While UNIFIL was unable to produce similar statistics for most other years, in 2007 UNIFIL spokeswoman Yasmina Bouziane told the international media that the mission was set to spend $36 million of its $90 million spending budget in Lebanon — again about 40 percent. In October 2006, shortly after the Israel-Hezbollah ceasefire, UNIFIL’s acting Chief Administrative Officer Jean-Pierre Ducharme said UNIFIL had spent $40 million on Lebanese contracts that year and that 60 percent of its total procurement budget over the last three years had been spent locally.

The largest contract with a Lebanese company has been an exclusive deal with Medco to supply fuel for UNIFIL jeeps, armored personnel carriers, helicopters and other vehicles, as well as generators. Since 2006, these contracts have totaled $50.7 million, with contracts signed in 2007 alone running at $22 million.

With UNIFIL’s increased demand for new bases and extra space on existing bases to accommodate its mushrooming numbers, Lebanese construction firms have also benefited.

The largest construction contracts UNIFIL has disclosed have been with Hanna Khoury and Brothers Company ($9.3 million), Dalal Steel Industries (at least $3.2 million), Maroun Assaf ($1.5 million) and Daher Contracting ($1.1 million).

UNIFIL’s Miguel de Cervantes base near Marjayoun — considered “the best UN base in the world” by many UNIFIL personnel — was little more than a campground in 2006. Marwan Dalal from Dalal Steel Industries said that his company provided 90 percent of the steel and prefabricated buildings used on the $16 million base, which was primarily built using prefabricated structures.

Major goods procured by UNIFIL in 2008

Major goods procured by UNIFIL in 2008 - Lebanon

Major services procured by UNIFIL in 2008

Major goods procured by UNIFIL in 2008 - Lebanon

Dalal added that the company had been responsible for similar amounts of work at other UNIFIL bases and positions.

Besides working with UNIFIL, Dalal Steel has also maintained contracts with American forces in Iraq and Afghanistan, the Lebanese Armed Forces, as well as with other UN missions across the world. While not disclosing exactly how much the company makes per year, Dalal said that contracts with UNIFIL could account for up to 20 percent of the company’s yearly business.

While arranging construction and procuring petroleum require fairly large contracts, UNIFIL also maintains smaller contracts — covering everything from gardening to mobile phones — with more than 150 other Lebanese firms.

Local jobs for local people

UNIFIL claims that its 800 or so full-time local staff make it the largest single employer of Lebanese in the area. Many more Lebanese also work with the peacekeepers on a temporary basis.

UNIFIL’s permanent local staff members are attracted by comparatively high salaries, jobs that have room for professional development and the opportunity to eventually take their career outside of Lebanon.

“Most of the Lebanese who started off with UNIFIL in the early years have now become permanent UN staff members all over the world,” said Goksel.

About 140 of UNIFIL’s permanent local staff are translators. Amal Kahawaji, a translator with UNIFIL’s Indonesian battalion, said that translators are paid about $2,000 per month – an attractive sum for young Lebanese university graduates whose average starting salary on entering the workforce is usually much lower.

For contractual workers, the jobs are also welcome but they do not reap the benefits of full-time UNIFIL staff.

Several cleaners from One World (a company working exclusively with UNIFIL providing cleaning, maintenance and landscaping services) on the Miguel de Cervantes Base said that they didn’t feel that their $500 per month salary was fair compensation for the work they were doing. However, the women, all from the surrounding villages, said that they were still lucky to have the jobs as work was scarce in the area.

All in all, former UNIFIL spokesman Goksel estimated that around 2,000 families in South Lebanon rely on UNIFIL for their livelihood.

Yoga and reconstruction

While contracts between UNIFIL and Lebanese firms clearly represent the most significant economic contribution of the peacekeeping mission, direct commitment of UNIFIL money and resources to local communities in the South also has a major impact on the area.

Civil Military Cooperation (CIMIC) projects are aimed at capturing the ‘hearts and minds’ of local residents and improving the public’s perception of UNIFIL.

“Quick Impact Projects” are the most common CIMIC operation. These small-scale projects cost up to $25,000 a piece and are primarily aimed at reconstruction and infrastructure building.  Examples of such projects include building sports facilities in villages and renovating schools.

The UN funds $500,000 worth of these projects a year — enough money for 30 projects in 2009.  Individual troop contributing countries, however, fund the majority of the projects. In 2009, Italy led the field, completing 112 projects worth $2.1 million. The Korean contingent completed 25 projects, totaling $1.3 million.

UNIFIL also provides a host of other activities within the local communities, from clearing unexploded ordnance to hosting free health clinics and even Yoga and Taekwondo classes, organized by the Indian and Korean contingents respectively.

Last year, UNIFIL’s clinics and medical teams treated more than 40,000 local patients, and since the beginning of 2005, a total of 150,000 people have received such treatment.

While Yoga might not have the same tangible benefits as other contributions such as free healthcare, UNIFIL stands by these endeavors, saying that they improve the quality of life for residents. Educational courses, such as language and computer classes, also help build skills to boost residents future job prospects.

A home away from home

On the tree-lined roads leading up to UNIFIL’s Miguel de Cervantes base near Marjayoun, Spanish flags fly outside of shops and locals greet foreigners with a friendly “hola, como estas?” At the Mirage Bar, camouflage-clad men drink $2 Almaza beers while their comrades scope out the prices of Hezbollah souvenir items and electronics next door.

This scene — repeated in permutations across South Lebanon — is a direct result of combining foreign troops with comparatively high disposable incomes and entrepreneurially minded members of the local population.

“If every soldier spends just $1, it will be very good for the economy,” said Jallal Ramal, who runs the PX (military jargon for an on-base store) at UNIFIL position 8-33 on the Lebanese-Israeli frontier.

While it is difficult to calculate exactly how much money UNIFIL soldiers and civilian staff regularly spend in the local economies of southern Lebanon, it is certainly far higher than Ramal’s $1.

Countries that contribute troops are given $1,028 per month per soldier by the UN. Additionally, the UN directly pays soldiers $1.28 per day for serving in Lebanon. As this wage is well below the standard salaries offered in some — especially Western — troop contributing countries, some contingents’ home countries subsidize this pay quite heavily. 

Other, poorer countries pay their soldiers directly out of the UN-provided stipend, though not necessarily always the full $1,028 per month.

Neither the diplomatic missions of most troop contributing countries nor UNIFIL headquarters in Naqoura were willing to comment on troop salaries for the various contingents, making it difficult to ascertain exact troop spending across the board.

However, Lieutenant Colonel Mar Guslin of the Indonesian battalion estimated that each soldier in his unit spent a minimum of $100 per month in the local economy. 

With around 1,000 troops stationed on the battalion’s Adchit Al Qusayr base, this would equate to at least $1.2 million spent on consumer goods and services in the surrounding villages each year.

Salaries for Spanish soldiers are much higher. Including the UNIFIL stipends and subsidized pay from the Spanish government, soldiers’ salaries start at 3,500 euros ($3,954) per month, according to Colonel Rafael Ropero Bolivar, a liaison officer at the Spanish embassy in Beirut. 

Pay grades go all the way up to 8,000 euros ($9,866) per month for Spanish generals serving in Lebanon.

With much more disposable income than other contingents, it is reasonable to assume that troops from European countries spend money more freely in the local economy.

While admitting it is difficult to calculate exactly how much cash a soldier might splash, Lieutenant Colonel Ismael Muro, a public information officer for the Spanish contingent, said that the average soldier might spend between $200 and $330 per month, with some spending up to $670 monthly.

By the lower-end estimates Muro supplied Executive with, annual local spending by the 1,076-strong Spanish contingent would be more than $3 million.

The presence of peacekeepers with money to burn has spurred a growth in shops, restaurants and services that cater exclusively to UNIFIL. 

“I don’t have any local customers,” said Khaled Nahra, the owner of Casa Elias, a large gift shop near Marjayoun that sells everything from blue beret-wearing stuffed animals to hard liquor and ninja throwing-stars to its peacekeeping clients.

In some of the predominantly Shiite Muslim southern towns, such as Naqoura, market demand has outweighed Islamic conservatism, with shops and restaurants selling alcohol for soldiers.

As stores catering to UNIFIL across the south expand their warehouses and the mission’s gargantuan headquarters in Naqoura sprawls even further in a flurry of construction, it is apparent that the word “interim” has lost its meaning.

With troops entrenched in the south for the foreseeable future, companies, communities and families in the area can look forward to continued economic benefit from the restive reputation of the land south of the Litani.

0 comments
0 FacebookTwitterPinterestEmail
Real Estate

Q&A – Mark Sleiman

by Nada Nohra
written by Nada Nohra

Creative Solution for Housing is a Lebanese real estate advisory and consultancy firm. Established in 2009, the company aims to introduce a ‘pay as you grow’ housing loan scheme for aspiring home-owners with limited incomes.

Executive sat with Mark Sleiman, the company’s managing director, to discuss the new scheme and Lebanon’s lending market.   

E  What is ‘pay as you grow’?

We are trying to become the middle point between the real estate developers, the buyers and the banks, and to service all three from a financial and a real estate perspective.

The ‘pay as you grow’ scheme is different from the conventional housing loan, because payments adapt to income over time. People’s income increases, so it makes sense that the payment rises in line with their income.

It exists in the United States but in a very different way. We changed the financial formulas that they use and we registered the concept as intellectual property.

I find the buyer the appropriate property within his budget and I manage the financing with the bank. We are reaching a new market which could not afford to buy houses before.

E   Has introducing a new concept to the market been challenging?

When buyers are committing to paying double what they are paying now in 10 years time, it is a big commitment. [The challenge is that] you have to first educate people about this type of product, which takes time.  

E  Are their special requirements to obtain the loan that differ from conventional requirements?

[The requirement] depends on the bank. This is only a loan repayment concept. We give [banks] a method of calculating payments based on interest and growth in income. The rest is all based on the bank.

E in Lebanon income does not grow with inflation, so how will you calculate the increase in payments?

We took all the numbers available at the Central Administration of Statistics and we realized that we have 4 to 4.5 percent growth in yearly income on average. We capped this growth to 3 percent. The person whose income today is $1,600, we consider that in 15 years it will be $2,400. It is very conservative but we don’t want to take the risk.

It is hard to calculate the numbers [but] you can predict the minimum. This product is not for everyone, there is a profile for the [right kind of] buyer, what he studied and where he is working.

E  If the buyer’s circumstances change, will the plan change?

We can refinance, reschedule, or give him more money. The basic point is flexibility.

E  Lending is becoming increasingly available. Will this affect demand and prices?

Yes, but the demand [we are targeting] already exists. In Lebanon [there is demand for] between 50,000 and 70,000 apartments per year. There are around 25,000 marriages per year, 7,000 divorces; all these create a certain housing demand. What we are trying to do is give that demand access to the supply… to target the real demand, not the speculators or investors, but those who have a real need for housing.

E  Do you think there should be regulations to stop price hikes?

You cannot do that in a free economy. I think rents will increase substantially, as it is the only alternative to buying. When rents rise, [property prices] will drop. Maybe not in prime areas like Achrafieh, but it could do, for example, in Metn or Keserwan.

What is scary is that the leverage ratio is increasing. The banks are financing up to 95 percent of the [cost of a] house, and some banks even 100 percent, depending on the person. This is what is dangerous and is what caused the financial crash abroad.

0 comments
0 FacebookTwitterPinterestEmail
Real Estate

Eating away at the edges

by Nada Nohra
written by Nada Nohra

“Buy land, they’re not making it anymore,” said the American author and humorist Mark Twain. Following Twain’s advice in a small country like Lebanon makes sense, as both the country’s geography and booming real estate sector have pushed quality plot prices to a premium.

That Lebanese can buy land in Lebanon is a fairly uncontentious issue; allowing or restricting foreign ownership in the country is, however, highly controversial. The issue has created a schism in the political arena between those who lobby for an open economy to attract investment, and those who want to fight speculation and preserve Lebanon’s identity.

The Maronite patriarchy, among the opponents of unfettered foreign ownership, recently issued a 175-page report entitled “Niyyel elli baad aandu marqad aanze bi Libnen,” which, roughly translated, means: “Anyone who has enough space in Lebanon for a goat to lay down should count themselves lucky.”

The report questions the accuracy of current land ownership data and proposes amendments to the current law. On the other hand, market experts Executive spoke to said that unless foreigners can pack their land in their luggage and head to the airport, there is nothing to worry about.

“A lot of people are making it sound a lot scarier than it is,” said Karim Makarem, director at Ramco real estate advisors. “I think it is very political and I think that what you will hear in general is a lot of scaremongers, depending on their political affiliations.”

The law

The foreign ownership law was issued back in 1969 and last amended in 2001. It states that any individual without the nationality of an “internationally acknowledged country” is forbidden to own real estate in Lebanon, thus preventing Palestinian ownership.

Moreover, it says that no foreigner can own more than 3,000 square meters of land suitable for construction or of a built-up area — replacing the previous ceiling of 5,000 square meters — unless approved by a special decree signed by the Council of Ministers, Lebanon’s Cabinet.

Both Father Camille Zaidan, director general at the Maronite Center for Research and Development, and Mohamad Chamseddine, policy research analyst at research firm Information International, said that it was easy to obtain a special decree. However, due to political disagreements and rising awareness of the issue, the number of decrees granted has lately decreased.

“In the last five months, only two decrees have been issued,” said Zaidan. 

Ramco’s Makarem added that “it is easy if you are somebody particularly important in the Arab world… It used to be more common pre-2005, but since then we have seen less.”

The law also stipulates that foreign ownership of land should not exceed 3 percent of the total area of each qadaa, or district. The current law also allows for 10 percent foreign ownership. The cap applies to land ownership by companies which are majority-owned by foreigners, in whose case only 50 percent of land owned by the firm is considered under the restriction. The General Directorate of Land Registry and Cadastre (GDLRC) is required by the law to update these numbers every six months and stop foreign land registration when the maximum is reached. As Executive went to print, the last time the figures were issued was July 2009.

The owner also has to develop the land within five years of the purchase, a deadline which can be extended once by the Council of Ministers. The Lebanese Company for the Development and Reconstruction of Beirut Central District (Solidere), a publicly traded company, is considered a special case and was allowed to freely purchase land for 25 years (starting 2001), but cannot sell to foreigners unless it is in accordance with the law.

The problem

The effectiveness of the law in controlling and monitoring foreign ownership of real estate in Lebanon is questionable. A major concern are large, unsurveyed swaths of Lebanon not recorded at the GDLRC. Paperwork for the sale of unsurveyed land is handled at the office of the local mokhtar (mayor or governor) and is not reported to the GDLRC. Consequently, there are no central recordings of sales to foreigners in these areas. Chamseddine explained that the largest unsurveyed areas are in the Bekaa Valley, Mount Lebanon and South Lebanon.

“Regardless of the restrictions and the laws we issue to limit foreign ownership, the numbers will not be specific since there are hundreds of areas which are yet to be surveyed,” said Zaidan. 

The report issued by the Maronite research center includes numbers from the Ministry of Finance stating that in 2007, 51 percent of Lebanon had yet to be subject to a final survey. However, according to Chamseddine, around 30 percent of Lebanon is currently unsurveyed, as in recent years the government has hired private firms to conduct the surveys, which are expected to be finished within 4 years.

Also of concern, says Zaidan, are foreign-owned companies registered in Lebanon that own land and foreign-funded Lebanese who purchase real estate. In either case, effective control of the land is not in Lebanese hands. Quantifying these numbers is difficult however, as on paper at least, it is all Lebanese owned.

“A Lebanese came to negotiate with a close friend of mine in order to help him buy 600,000 square meters of land in Baabda for a foreigner,” said Zaidan as an example.

“There is a certain number [of people purchasing property in this way], but how much… no one knows,” said Georges Chehwane, chairman of Plus Properties.

Officially, when foreign land ownership in a qadaa hits its limit, foreigners will only be able to buy from each other. However, the concern is that the official numbers vastly understate the foreign ownership, given the unrecorded sales. 

“After the research that we have done, I am convinced that in Baabda they’ve already trespassed the three percent, and Beirut is definitely more than 6.51 percent,” said Zaidan.

Does it really matter?

Opinions diverge on whether to implement stricter restrictions on foreign ownership, or allow the free market to exercise its power over the sector.

Zaidan says he is worried that high foreign demand is fueling speculation and inflation. He adds that middle class Lebanese can no longer afford property in Beirut and are being pushed out of the city, as wages are not rising in accordance with inflation. According to Ramco real estate advisor’s research department, residential property prices in Beirut have increased some 120 percent on the lower end and, on average, 150 percent for high-end property in the last five years.

 “The main question is: Where are we heading?” Zaidan said. “We are entering into a social crisis that has no solution.”

He suggested that the foreign ownership issue should be monitored through better documentation, with more legal restrictions on the purchase of real estate by non-Lebanese. 

On the other hand, advocates of a free market say that the foreign purchasing in Lebanon is still a very small percentage of the total, and is thus too insignificant to have an impact on the real estate sector.

Elie Harb, president of Coldwell Banker, said that the laws restricting foreign ownership should be repealed; arguing that it only represents some 2 percent of the real estate market. Both Harb and Makarem also said that many foreigners are currently selling their land or apartments, and sales to foreigners have gone down, mainly due to the financial crisis.

“The day we put up rules to ban foreign ownership we are going to scare many investors,” said Makarem. “So I think those consequences outweigh the consequences of allowing foreign ownership.”

George Sioufi, chief operating officer of GRE properties, said that he also encourages foreign ownership of properties. He is concerned that it might hurt the market if international owners start selling their properties.

“It is true that a year and a half has passed since the financial crisis started, but what if they are leaving Lebanon as their last resort?” he said. 

Building ahead

As it stands, with some 30 percent of Lebanon not surveyed, a foreign ownership law that is easily skirted, in addition to politicization, has made it nearly impossible to ascertain exactly how much of the country is owned by foreigners.

In the future, it remains to be seen whether the Lebanese authorities will answer the conservative call to implement stricter control, or if they will adopt a more liberal approach which, some experts say, is healthier for the future of the real estate market and the economy as a whole. 

0 comments
0 FacebookTwitterPinterestEmail
Economics & Policy

Q&A – Paul Griffiths

by Paul Cochrane
written by Paul Cochrane

DubaiAirports Chief Executive Officer Paul Griffiths currently oversees operationsat Dubai International while at the same time coordinating the launch of DubaiWorld Central-Al Maktoum International (DWC), which is slated to be the world’slargest passenger and cargo hub. He sat down with Executive to discuss thecompany’s activities.

E   Dubai International became thethird busiest airport in the world this year. The expectation is that it willbe the busiest by 2020, but could you reach the top spot before that date?

Basedon our growth projections, this is entirely possible. The busiest airport forinternational passenger traffic currently is London Heathrow with around 60million per annum, whereas we will reach 46 million this year and 52 million bythe end of 2011. As you know, recent proposals for a third runway have beenshot down, which significantly constrains Heathrow’s future capacity. Paris,Frankfurt, Hong Kong and Amsterdam also face capacity constraints, althoughthey are less severe and have slower growth rates. All told, we believe we canget to the top spot within the next several years.

E   What challenges are you facing tohandle such exponential growth in passenger and freight traffic?

Theprovision of timely and efficient capacity, both in terms of infrastructure andairspace, is a top priority. We have aggressive plans in place to boostcapacity at Dubai International from the current 60 million passengers per yearto 90 million by 2018 and to complete the world’s largest airport at [DWC], bythe midpoint of the next decade for 160 million passengers. Our goal is tostreamline processes and implement technologies that allow us to do this asefficiently as possible.

E   While Dubai International is thebase of carrier Emirates, what are you doing to attract more airlines?

Dubai’sopen skies policy combined with top-flight infrastructure provided atcompetitive rates has served us well to date. With 130 airlines offeringservices to 220 destinations on six continents, we already provide consumerswith a compelling range of options. That said, we are always looking to growthose numbers and do so primarily through direct and ongoing consultation withexisting and prospective client airlines.

E   DWC began cargo operationsrecently. Did this have any affect on Dubai Airport’s freight operations? Ifnot, why is that the case?

Thetwo operations are complimentary. They provide attractive options to our clientairlines whose commercial and operational requirements often vary. To date we have19 cargo airlines signed up to operate at the new airport. We expect thatnumber to increase in the years ahead as slot availability for cargo freightersdiminishes and air freight volumes reach capacity limits at DubaiInternational.

E   The Strategic Plan 2015 is forDubai to be the region’s aviation hub. What role will Dubai Airport play inthis plan, given the development of DWC? What will happen to DubaiInternational when DWC is fully operational?

Ithink it’s safe to say we are already the region’s aviation hub and haveestablished Dubai as a leading global aviation hub. The next step in thejourney is to fully develop Dubai International’s capacity and cement itsposition as the number one international hub by the end of the decade. DWC willtake us to the next level serving as the world’s largest airport with room for160 million passengers and 12 million tons of freight when it is completed atsome point in the mid-2020s. It is too early to say what will happen to DubaiInternational at that point.

 

 

0 comments
0 FacebookTwitterPinterestEmail
Economics & Policy

The world isn’t sinking

by Natacha Tannous
written by Natacha Tannous

After four months of anxious waiting, the Government of Dubai, along with government-owned conglomerate Dubai World and real estate subsidiary Nakheel, released official statements on March 25 regarding the restructuring of billions of dollars in debt and the reorganization of both companies.

 

The emirate stated that it intends to support the debt restructuring plans of Dubai World and Nakheel “with significant financial resources, including…up to $9.5 billion in new funding,” according to the statement by Sheikh Ahmed bin Saeed al-Maktoum, chairman of the Dubai Supreme Fiscal Committee. Acting on behalf of the government, the Dubai Financial Support Fund (DFSF) will allocate $1.5 billion to Dubai World and $8 billion to Nakheel, of which $5.7 billion stems from unused Abu Dhabi loan proceeds. The remainder will come from internal governmental resources.

Restructuring and reactions

Dubai World’s $23.5 billion of outstanding debt is broken down between $14.2 billion in external debt (including United Arab Emirate banks) and $9.3 billion owed to the Government of Dubai through the DFSF. Given the sheer size of the tab, there were many turmoil-filled scenarios that had circulated through the Gulf financial world before the debt restructuring announcements — which have been greeted with a general sigh of relief.

Three key takeaways from these announcements were: First, the DFSF capital injection of $1.5 billion will be used to fund Dubai World’s working capital and interest payments on its restructured debt. Second, the Dubai government will equitize $8.9 billion out of its $9.3 billion debt outstanding, and such restructuring – meaning the capital injection plus the equitization “will allow Dubai World to focus on its core holdings and to manage and realize full value from its assets,” stated the Government of Dubai. Finally, the 97 non-DFSF creditors — of whom Emrati and United Kingdom banks own the lions share of the debt — will see their $14.2 billion claim fully restructured with a haircut on the principle, through the issuance of new debt into two tranches of five and eight-year maturities.

The announcements were well received by the markets, bringing down the cost of insuring Dubai’s debt. This is most clearly exemplified by Dubai’s five-year credit default swap spread dropping 14 percent, sliding from 420 basis points to 360 basis points. To crunch a few numbers, with the current 6.5 percent discount rate — as opposed to February’s 10 percent — and a 50 percent principal repayment in five years and the other half in eight years, the net present value is 67 cents on the dollar; much less of a hit than creditors had initially feared.

Nakheel restructuring and the real estate sector

The DFSF capital injection of $8 billion will be used to fund Nakheel’s operations and to terminate its current outstanding debt. Moreover, the government will also “recapitalize Nakheel through the equitization of the Government’s $1.2 billion claim.”

Even if the terms of the announced deals vary according to the type of creditor, all Nakheel debt holders will receive full repayment — when, however, is another question, as most maturities are as yet unclear. The schedule of Nakheel sukuk Islamic bond holders is set though, and should be fully repaid on their 2010 and 2011 maturity dates.

The bottom line
$9.5 billion in fresh funds to be injected by the Dubai government
$1.5 billion into Dubai World
$8.0 billion into Nakheel
Of which:
$5.7 billion is from unused Abu Dhabi loan proceeds
$3.8 billion is from internal Dubai government resources Dubai World’s $23.5 billion debt breakdown:
$9.3 billion owed to the Government of Dubai (of which $8.9 billion will be equitized)
$14.2 billion owed to external creditors, who should receive full repayment via new debt, in tranches of five and eight year maturities

 

Since Nakheel developments amount to a substantial amount of the pending projects in Dubai, the proposal “will have a significant direct impact on the construction and real estate sectors and the wider economy,” stated Sheikh Ahmad.

Challenges remain

The announcements bring some much-needed positive sentiments back to the market. However, “the restructuring process is expected to take several months to implement,” highlighted Sheikh Ahmed, and the high capital injection and governmental equity share might decrease the potential support for other struggling government-related entities. Furthermore, the financial support increases UAE government exposure to Dubai World: a situation not as welcomed by creditors as a government guarantee would have been. Finally, even if Nakheel’s restructuring proposal helps investors regain confidence in the real estate sector, the oversupply of product built and near completion remains.

0 comments
0 FacebookTwitterPinterestEmail
Real Estate

Waking the sleepers

by Rayya Salem
written by Rayya Salem

Grandiose visions of splendor have dissipated for Dubai’s developers after a sobering couple of years spent rethinking their payment schemes and trying to re-galvanize investor confidence. Now they are left with an array of unfinished projects, many of which are currently dormant.

 

“Not many projects have been restarted except the Nakheel ones,” says Charles Neil, chief executive officer of Landmark Advisory, a division of Landmark Properties. “Most of the ones that are stalled will remain stalled.”

Neil adds that it was the combination of the financial crisis and many developers’ lack of experience that led to the huge swaths of unfinished projects scattered throughout the emirate. Certain areas like Business Bay and Dubai Marina have a concentration of unfinished work, though some slow and cautious crane activity recently restarted. In June 2010, Proleads, a construction consultant, said $5 billion worth of Dubai projects were stalled, some of which had never physically started construction. More recent data published in The National suggests that more than a fifth of Dubai’s projects are postponed or have been cancelled completely.

According to Fadi Moussalli, regional director at Jones Lang LaSalle in Dubai: “Some projects went beyond the point of no return; depending on the project’s financing [or re-financing], how much was sold and how much of the down payment has been paid in cash, a developer may reach a conclusion that it would be less costly to re-launch building [work] rather than do nothing because of the liabilities on that building.”

Dubai World’s property arm, Nakheel, repaid $930 million to creditors as early as September of last year, announcing a mighty revival of construction on eight of their stalled projects (see chart). Though priority was given to Al Furjan and Jumeirah Park villas, Nakheel, in a November 12 announcement, only mentioned reactivating the first phases of construction. That means Arabtec, the construction company assigned to Al Furjan, is back on payroll but will complete only 800 units out of the 4,000 originally planned by the first quarter of 2012, after it had halted work in January 2010.

Pauling Middle East and Al Huda Contracting Company will both go back to stacking up villas in Jumeirah Park, but Al Huda will only deliver 289 out of the 2,764 villas originally planned by the fourth quarter of 2011. In response to investor frustration over Nakheel’s delivery delays, Chairman Ali Rashed Lootah said in February that about half of the company’s liabilities to buyers were swapped for these and other units to be completed in the next two years.

Landmark Advisory’s Neil believes most developers have opted to downsize their projects: “For people who put down payments on five villas, their deposits will all go towards one villa; that’s how they consolidate.”

The cost of stalled projects

A project’s revival will be driven by its uniqueness, its location and “the possibility of securing an anchor tenant, if that’s relevant” said Mark Fraser, partner at Dubai law firm Taylor Wessing, who believes that “it’s not just Nakheel that will be resuscitating projects.” Areas other than Business Bay, Dubai Marina (where Abyaar and Omniyat are trying to restart projects) and Jumeirah are seeing re-construction, such as the tourism mega-project in Dubailand, City of Arabia, which is being developed by Dubai Properties.

The biggest issue for developers is reeling in their contractors. “If you renegotiate with the appointed contractor, there are certain running costs in addition to remobilization costs for the stalled projects,” said Rizwan Shaikhani, managing director of Shaikhani Contracting. “If you appoint a new contractor, he’s got big liability concerns because he has no idea how it was built by the other contractor and has to go through complicated legal formalities and project details to ensure nothing has been overlooked.”

Any delays pose structural concerns, as exposed projects are subject to Dubai’s harsh environment. When slabs under the foundation are exposed to high temperatures for years it can cause a defect, posing a legal headache for the old and new contractor as well as safety concerns for the owner and future residents. The United Arab Emirates’ civil code does not specifically address who is at fault in such a situation, but, as Fraser asserts, “Given the potential liabilities that a contractor can face under the UAE civil code, he is going to implement exhaustive surveys to manage such risks.”

For example, exposure to salt and humidity in porous concrete can alter its composition after a year or two, depending on its quality, according to Tanmay Biswas, an engineer at Meinhardt Dubai who spoke at a June 2010 conference in Dubai about the risks of re-constructing stalled projects. Exposed pumps, electrical cablings, rebar and steel also need to be protected from the elements, but owners and consultants often spar over who should pay the maintenance fees when a project has been stalled, according to Biswas.

Anyone in business knows that time is money. But for Dubai’s half-built structures, time is more costly than elsewhere because the climate weighs heavily on the cost of re-starting construction. According to Taylor Wessing’s Fraser,    when Thailand was finally bouncing back from the 1997 Asian financial crisis some five years ago, half-built developments that had been stalled for six or seven years were resuscitated. Contractors weren’t particularly concerned about degraded materials because of Thailand’s wet tropical climate.

“[Dubai] is obviously different because of salt and heat issues, but you could still resuscitate a building 3-5 years after, if a reputable survey company, either local or international, has carried out a comprehensive examination of the building,” said Fraser.

Oversupply

Given the oversupply across all sectors in Dubai and the resulting negotiating power of the tenant shopping around for the best deals, one of the prickliest thorns for developers is not reconstruction but rather trying to fill the units after they are finished.

Dubai Pearl shining up a treat
Pearl Dubai FZ Chief Executive Officer Santhosh Joseph seems to have weathered the financial storm better than most. In a February email to Executive, Joseph said that fundraising was underway for phase one of the Dubai Pearl – a 1.86 million square meter ‘city-within-a-city.’ “A total of 3 million man hours have been spent since work started and over 70,000 cubic-meters of concrete has been poured on what is one of the largest construction projects still being developed in the UAE,” he said.
 
It has been a long road for the project since it was conceived in 2003. Pearl Dubai FZ, a consortium headed by Abu Dhabi’s Al Fahim group, took control of the project in 2007 after its previous owners had to give up on it due to financial concerns. In November 2008, the UAE’s largest construction group, Al Habtoor-Leighton, bagged the $2.4 billion main construction contract, the largest deal in the region at the time.
 
The initial phase will cost $2.5 billion to build, but construction “[has] never stalled and remains on schedule” since starting in March 2010, though it was earlier announced that construction would begin in January 2009 after structures were demolished on-site during the enabling works phase in September of 2008. Most probably because of the change of ownership and drastic “revival plan” that called for a $6 billion project instead of the originally planned $800 million project on the cards, the project was “stalled” for years, according to various local and non-local media outlets.

In 2011, Dubai’s total housing stock will see an increase of 25,000 new units, bringing the total number to around 335,000, according to Jones Lang LaSalle’s fourth quarter 2010 report released in January, adding that the value of transactions dropped 65 percent in the year leading up to the third quarter of 2010. Reports issued last month say properties such as Jumeirah Lakes Towers are still empty, as is half of Dubai Marina, where 36 crane sites are actively humming along.

Jones Lang LaSalle’s Moussalli said, “It’s very tough to fill a building with over 100 units when tenants are dictating [the market].”

Landmark Advisory’s Neil adds to the gloomy mix: “I think the investors don’t have a lot of confidence that these projects will be completed on schedule. For example, we [Landmark Properties] get some of these houses on the secondary market.

Buyers are not interested because there’s plenty of choice to buy something ready and functioning and because you have no idea when they will be completed.” There are also problems such as a lack of utilities connections and infrastructure in zones like Business Bay, meaning that even if homes are complete, they are still not immediately livable. 

Next target… malls

Developers seem to be turning to Dubai’s greatest pastime, shopping, to grease the cash-flow wheel since it became rusty in the dry financial climate of the last two years. Emaar, the other Dubai-based construction giant often described as Nakheel’s rival, pulled in 24 percent of its 2010 revenue from its retail and hospitality sector, according to its 2010 earnings statement released on February 10. In 2009 it was about nine percent of revenue.

Perhaps that’s why Nakheel is set to expand its Dragon Mart and Ibn Battuta malls in Dubai as soon as the eight priorities it listed in September are brought to fruition, as a serious cash inflow would be more of a priority than finishing work on other stalled projects.

0 comments
0 FacebookTwitterPinterestEmail
Economics & Policy

Regional equity markets

by Executive Editors
written by Executive Editors

Beirut SE  (One month)

Current year high: 1,200.49    Current year low: 737.84

>  Review period: Closed: April 21 – 1,143.23         Period change: 2.74%

A cone-shaped rise and fall on the Beirut Stock Exchange kept the MSCI Lebanon index gains modest in the review period. BLOM Bank was the best gainer in April with 16.1%, followed by Byblos Bank (common shares) with 14.8%. Byblos shareholders approved a 66% rights issue on April 12, boosting interest in the scrip around that time. Other good news for banks came from ratings upgrades by Moody’s, in line with a sovereign upgrade, and by Fitch. Market cap leader and real estate stock Solidere weakened in the review period.  

Amman SE  (One month)

Current year high: 2,968.77                Current year low: 2,396.28

> Review period: Closed: April 21 – 2,561.04          Period change: 1.72%

Rather noticeable volatility reigned on the Amman Stock Exchange, where the ASE benchmark index could not sustain an intra-month rally and closed the review period only 1.72% up from the last close in March. Earlier in April, the index had risen to near 2,650 points, its highest level since last October. Although the Housing Bank for Trade and Finance moved 6.3% lower, other banking stocks showed resilience and their sector index ended the period 4% higher. Market cap leader Arab Bank gained 7.6%. The indices for industrial and insurance stocks dipped into negative territory.

Abu Dhabi SM  (One month)

Current year high: 3,239.74                Current year low: 2,441.28

> Review period: Closed: April 21 – 2,820.45          Period change: -3%

There was no fun and gains for equities in Abu Dhabi this April, but for the year to date the index was still up 2.8%. The general trend was downward across all sectors on the exchange and the best performing stock in the review period was out-of-towner Qtel, which advanced 22.6%. Aldar Properties lost 9.1%. The worst performing sub-indices were consumers, down 9.7%, followed by real estate and telecommunications, which lost 6.7% and 6.3%, respectively. Pundits have it, however, that the investor confidence in Abu Dhabi and across GCC markets is on a positive track. 

Dubai FM  (One month)

Current year high: 2,373.37                Current year low: 1,533.36

> Review period: Closed: April 21 – 1,730.51          Period change: -6.1%

Book and run was the motto of Dubai investors, who apparently hurried to cash in gains achieved in March and reacted nervously to any hint of unfavorable news on the DFM. Investor behavior sent the index tumbling in the review period and pushed it back into negative territory for the year to date – the region’s only index to be in the red by that measure. For the three weeks in April, only six stocks on the DFM could show gains. Losers included well-known names across all sectors, such as Aramex, Oman Insurance, du, Arabtec, Emirates NBD, and Emaar.

Kuwait SE  (One month)

Current year high: 8,371.10                Current year low: 6,650.80

> Review period: Closed: April 21 – 7,244.30          Period change: -3.84%

Being far south of Iceland’s ash cloud didn’t do much for equities in Kuwait in April. The KSE index was the GCC markets’ second worst performer in the review period, dropping below 7,300 points for the first time in two months. The downward push at the end of the review period uniformly affected the major sectors whose indices all entered the red. Banking, down by 0.43%, was the least affected. Market champion Zain Group shed 5.9%.  

Saudi Arabia SE  (One month)

Current year high: 6,894.55                Current year low: 5,407.31

> Review period: Closed:  April 21 – 6,730.12         Period change: 1%

The petrochemicals sub-index had the best performance, up 3.63%, whereas energy and utilities fared worst at minus 11%. Losers outnumbered gainers and included the largest bank by market cap, Al Rajhi, which dropped 6.4%. Market-heavy manufacturers SABIC advanced half a percent. Optimistic voices on the year’s equity performances remained dominant but — except for volcanic emissions in unpronounceable Nordic locales  — April, on the whole, was a steam-less month in GCC equity markets.

Muscat SM  (One month)

Current year high: 6,933.75                Current year low: 5,049.03

> Review period: Closed: April 21 – 6,906.66          Period change: 3.21%

The Muscat Securities Market index close represented the best GCC performance in the review period. Poultry farming company A’Saffa Food doubled its share price as the MSM’s top gainer in April after the company undertook a 10 for one stock split at the end of March. The banking sector index led the market’s upward performance sector-wise and the banking index outperformed the general index by almost 3%. Market cap leader BankMuscat ended the review period 5.1% higher; telecommunications operator Omantel was in the balance with a 0.1% drop.

Bahrain SE  (One month)

Current year high: 1,656.43                Current year low: 1,413.28

> Review period: Closed: April 21 – 1,540.52          Period change: – 0.42%

Significant fluctuations rocked the Bahrain index, which closed down 65 points from its intra-month high but still up 5.64% for the year to date. The banking index, in a rough ride, outperformed the market but the investment sector underperformed. Market cap leader Ahli United Bank was among the top gainers, up 2.94%; the scrip has appreciated 61% in the year to date. At the other end of the scale was Gulf Finance House which could not stem its price slide and closed the April 21

session 19.2% down on the month. 

Doha SM  (One month)

Current year high: 7,801.33                Current year low: 5,426.04

> Review period: Closed: April 21 – 7,617.62          Period change: 2.1%

The Qatar Exchange was the second best GCC performer from April 1 thru 21. The close on April 21 represented a gain of 9.5% for the year to date, almost on par with the Saudi Tadawul’s y-t-d gain of 9.9%. Like several other regional exchanges, the QSE index reached new 18-month highs in April but couldn’t sustain them. There were more gainers than losers on the QSE and Al Khaleej Insurance and Doha Insurance topped the gainers’ list with respective share price increases of 17.3% and 16.8%. Insurance was the best sector index in the review period, followed by banking.

Tunis SE  (One month)

Current year high: 4,772.39                Current year low: 3,337.48

> Review period: Closed: April 21 – 4,738.92          Period change: 1.53%

The Tunindex of the Tunisian Stock Exchange stayed its course with little volatility compared with the last session in March. The index closed a five-point whisper below its year high from February 9. Insurance company Assurances Salim, which debuted on April 1, gained 42% from its issue price but any stock performance in the review period was incomparable to that of telecommunications infrastructure firm Servicom, whose price reportedly rose nine fold on a trade of three shares.

Casablanca SE  (One month)

Current year high: 12,137.95  Current year low: 9,997.56

> Review period: Closed: April 21 – 12,038.45        Period change: 5.4%

The Casablanca Exchange was the number 2 upward outlier among MENA securities markets in April, with a rise of 5.4% during the review period. Dropping in the first week of the month, the MASI benchmark index rose strongly from April 12, scaling a new 17-month high with 12,137.95 on April 20. The majority of stocks showed gains, including the market heavies Maroc Telecom (up 1.26%) and Attijariwafa Bank, which ended the period 4% higher after profit taking on April 21.

Egypt CASE  (One month)

Current year high: 7,591.37                Current year low: 4,953.53

> Review period: Closed: April 21 – 7,581.71          Period change: 11.4%

The Egyptian Stock Exchange raced to the top of the regional charts in the April review period, heaving the EGX 30 index to a 22.1% rally from the start of 2010. Index readings reached in mid-April have been the highest since mid September 2008. Orascom Telecom Holding, the number two by market cap on the EGX, was top dog in share price appreciation during the review period and rallied 33%. Telecom Egypt gained 8.9% and Orascom Construction, 3.3%.

0 comments
0 FacebookTwitterPinterestEmail
Economics & Policy

IPO Watch

by Executive Editors
written by Executive Editors

Insatiable” was not the word to describe the behavior of actors in Middle Eastern primary markets in April 2010. While it appears credible that investors have been hungering after opportunities, the dearth of initial public offerings (IPOs) and secondary offerings in April 2010 was so complete that no actual primary market performance numbers were available from the Gulf or the Levant.

The only market to report any securities market entrant and any new offering in April was Tunisia, where two insurance companies took listing steps. Tunis Re, the reinsurance company, carried out the subscription period for its IPO from April 5 to 16, offering 22 percent equity for $10 million. The results of subscription were not published at the time of this writing.

Assurances SALIM started trading at the beginning of April following its $7 million subscription offer for 25 percent equity in March, which was over-subscribed almost 30 times. The company’s share price, $10.62 at issue, started trading at $15.22 on its first day and closed at $15.20 on April 20.

The underperformance of Middle Eastern IPO activity this year is noteable when compared with international markets. According to Zawya, the count of eight IPOs between January 1 and April 20, 2010, represented a slight increase from seven in the same period a year ago, but the cumulative value of the eight recent IPOs was less than $440 million, down 60 percent from $1.1 billion a year ago. 

By contrast, global IPO activity in the first quarter of 2010 increased fivefold to 267 public  offerings, the aggregate value of which skyrocketed to $53.2 billion from only $1.4 billion in the first quarter of 2009, said a report by financial auditor Ernst & Young.

The value of issues ballooned in part due to venerable Japanese life insurer Dai-ichi’s $11 billion conversion from a mutual company owned by policy holders to a public listing.

Beyond this mega issue — the world’s largest IPO in two years — and two large insurance IPOs in South Korea, the usual emerging markets champs China, India and Brazil were named as the prime grazing grounds for IPO investors so far this year. Proving them right, the state-owned Agricultural Bank of China said in April that it wants to stage the world’s largest IPO ever, to raise $30 billion in the third quarter of 2010.

Reinforcing the image of a pale Middle Eastern IPO ice princess, companies in the region that recently announced planned offerings promised long-term marvels while keeping the veil tight on timing and details. Lebanon’s Middle East Airlines wants to privatize about 25 percent through an IPO in 2011, the airline’s chairman Mohammed Hout said in a replay of listing plans that were shelved due to the upheavals of 2006. In the Gulf, officials of retailer Landmark and building materials firm Danube each hinted at IPO plans, but with time frames ranging from two to four years.

More tangible investment opportunities, albeit with eligibility limits, came from two companies with rights issues on their agenda. Saudi Stock Exchange-listed insurer Saudi Fransi Cooperative in early April obtained shareholder approval to double its number of outstanding shares to 20 million through a $33.3 million rights issue. Shares were issued at $3.33 apiece between April 10 and April 19. The company’s share price, which had risen sharply at the beginning of April, dropped back in the course of the month to close at $11.47 on April 20.

In a new rights issue announcement on April 19, United Arab Emirates telecommunications firm du revealed that it was seeking a billion-dirham capital infusion from shareholders, through a 25 percent rights issue which will increase the company’s total number of outstanding shares to 5 billion.

Officials at du said the new capital will be used for network expansion and new tech capacities. Pending shareholder approval in May, the issue will be carried out in May/June as the second sizeable rights issue in the UAE in nine months.    

As far as full initial public offerings with pizzazz and a powerful Middle Eastern corporate ingredient, regional investors may look to India where Emaar MGF, the property joint venture led by Emaar Group, has announced its intent to raise $770 million through an IPO before the end of the summer. That offering will considerably spice up the Indian IPO market, which boasts so far 20 IPOs with cumulative worth of $1.2 billion from January through March 2010.

0 comments
0 FacebookTwitterPinterestEmail
Economics & Policy

For your information

by Executive Editors
written by Executive Editors

IMF estimates for Lebanon

According to International Monetary Fund estimates, Lebanon registered the second highest growth rate in the Middle East and North Africa behind Qatar last year. The Fund estimated that Lebanon’s economy grew 9 percent in 2009, which placed the country in fourth place globally in terms of real gross domestic product growth. This year the IMF estimated that Lebanon will grow 6 percent, 2.5 percent higher than the MENA region average, and by 4.5 percent in 2011, 0.3 percent below the MENA average. In parallel, the fund estimated that inflation during 2010 would average 5 percent, 1.5 percent below the MENA average. The IMF also forecast Lebanon’s current account deficit at 12.8 percent of GDP, 2.06 percentage points above the finance ministry’s proposed budget deficit for the year. In conclusion, however, the Fund noted that forecast accuracy is mitigated due to Lebanon’s weak statistics regime and stressed that real sector statistics should be provided on a more timely basis.

SME’s lap up loans

Kafalat, the publicly-sponsored financial institution offering loan guarantees for small and medium-sized enterprises in value added sectors, has reported that the value of loans extended to these businesses in the first quarter of 2010 has grown by 57.5 percent year-on-year. The total value of the loans guaranteed by the institution totaled $46.3 million in the first three months of the year. The number of loans also grew by 83 percent, from 214 in the first three months of 2009 to 392 during the same period in 2010. That said, the year-on-year average value per loan decreased 24 percent, to $118,173 per loan. The largest portion of loan guarantees were extended to projects in the agricultural sector, which captured 49.2 percent of total guarantees in the first quarter of the year. The region with the most guarantees was Mount Lebanon, accounting for 39.8 percent of the total number of guarantees over the covered period.

At last – 2008 figures announced

Almost a year and a half after the fact, the government of Lebanon has released official figures for real sector growth in 2008. The figures were compiled by the National Accounts Unit with the aid of the French research firm L’Institut National de la Statistique et des Etudes Economiques (INSEE). The report states that gross domestic product in 2008 reached $29.9 billion, reflecting a real GDP growth of 9.3 percent during the year. The real negative trade balance came in at $8.7 billion in 2008, compared to $6.3 billion in 2007. The figures confirm that commercial services were still the dominant sector in 2008, comprising 33 percent of the economic output, followed by trade (27 percent), construction (13 percent), industry (9 percent), government (9 percent), transport and communications (7 percent), and then agriculture and livestock (6 percent). The only sector that contracted in 2008 was the energy and water sector, with 4 percent sliding down the drain.

Bond boost from ratings firm

The global ratings agency Moody’s has upgraded Lebanon’s government bond ratings from B2 to B1. Last December the agency rated Lebanon as having a positive outlook because of “sustained improvement in external liquidity, the strengthened ability of the country’s resilient banking system to finance fiscal deficits and an amelioration of the domestic political situation following the formation of a consensus government last November.” Moody’s also upgraded the country’s foreign currency bank deposits to B1 from B2 and its country ceiling for foreign currency bonds to Ba3 from B1, while maintaining a stable outlook on sovereign ratings. The agency also stated that increased foreign assets at Banque du Liban, Lebanon’s central bank, “[placed] the country in a more favorable position to absorb financial shocks (including any potential rise in deposit dollarization), while also providing ample cover for the government’s maturing foreign currency debt.” However, Tristan Cooper, vice president and senior credit officer at Moody’s Sovereign Risk Group, cautioned that “despite the recent improving trends, Moody’s notes Lebanon’s significant political and economic vulnerabilities. These include wide twin deficits, a very high public debt overhang, a tense domestic political environment, and the persistent threat of an escalation with Israel.”

Broadband lumbers forward

Telecommunications Minister Charbel Nahas said last month that the project to develop a national fiber-optic network to increase Internet speeds in Lebanon will cost $92.9 million. The announcement was made at a conference on April 12, after the minister had announced in January that the project would cost some $166 million. In March, Executive cited telecommunications experts at the International Telecommunications Union, the United Nations agency for telecommunications, as stating that the project should cost no more than $40 million. Speaking at the conference, Nahas said that $66.3 million had been requested from the Council of Ministers, Lebanon’s cabinet, to start funding the project. The figure is close to the previous minister’s estimate of $64 million to implement the project. Lebanon is still in the process of passing a budget for the year, before which new projects cannot be funded from government coffers. According to Naji Andraos, director general of construction and maintenance, the project requires some 4,000 kilometers of fiber optic cable, most of which will be laid in two “super rings” that will carry the bulk of the data around Lebanon to be transferred to “metro rings” in population areas. The “access layer,” the final crucial link between telecommunications infrastructure and the user, is still being studied by the ministry, which hopes to finish its assessment by mid-2011, according to Abdulmenaim Youssef, the head of Lebanon’s incumbent public operator, Ogero. Youssef also heads the Directorate of Operations and Maintenance at the Ministry of Telecommunications, whose job it is to oversee Ogero’s operations. Without defining the access layer, an accurate financial estimate of how much the project will cost is near impossible. “The tender for the optical backbone and the metro backbone is still in the planning phase,” said Anders Lindblad, president of Ericsson in the Middle East. “Sure there is a budgetary estimate, but the competition [in the vendor market] will determine the price.” He added that the project will likely take 10 to 15 years to complete. In related telecom news, Kamal Shehadi, the chairman of Lebanon’s Telecommunications Regulatory Authority (TRA), has resigned, according to a TRA press release dated April 26.

The LNG alternative

A study by Poten & Partners commissioned by the World Bank has found that liquefied natural gas (LNG) could prove to be an effective solution to Lebanon’s current energy problems. The study stated that Lebanon could relieve itself of its high oil bills by switching the Zahrani combined cycle gas turbine (CCGT) power station to LNG, saving the country between $75 million and $80 million a year. The study also stated that while the Beddawi plant in the north of the country was being supplied by the Gasyle 1 pipeline, it would be too expensive to transport gas to the south of the country from the station. Poten & Partners estimated that Lebanon needs 1.5 million to 2 million tons of LNG per year, which could be procured from the expected 80 million extra tons coming online in the global market between 2009 and 2013. If Lebanon acts fast and takes advantage of current market surplus, the firm believes that the country would not have to pay an additional country-specific risk premium and could acquire gas at a price of $7 per million British Thermal Units.

growth for First quarter tourism

The number of tourists who visited Lebanon in the first quarter of this year has grown by 32.1 percent when compared to the same period in 2009, according to Byblos Bank. The total number of tourists who visited the country between January and March came in at 393,212. The lion’s share of tourists came from Arab countries, which accounted for 43.2 percent of total visitors, followed by Europeans (22.5 percent), Asians (21.6 percent), then travelers from the Americas (8.8 percent), Oceania (2.2 percent) and Africa (1.6 percent). Just over 40 percent of the total number of tourists entering Lebanon in the first quarter came in March, which registered 158,411 tourist visits. According to Global Refund, the VAT refund operator, visitors from Saudi Arabia spent the most in Lebanon during the first quarter of this year, comprising 21 percent of all tourist spending. Spending by visitors from Syria also rose by 57 percent year-on-year during the first quarter. The highest product category for tourist spending was fashion and clothing, at 67 percent of the total.  Speaking to the press last month, Fadi Abboud, Lebanon’s tourism minister, stated that Arab visitors account for 70 percent of tourism revenue. According to Abboud, the total amount granted to the ministry to promote Lebanon abroad in the proposed budget is just $4 million. He added that he hopes to raise an equal amount from the private sector and to establish a promotional board for Lebanon between the private and public sectors to promote tourism.

0 comments
0 FacebookTwitterPinterestEmail
Real estate

For your information

by Executive Editors
written by Executive Editors

Ras Beirut’s rampant real estate

A recent study by Al Iktissad wal Aamal magazine on the Ras Beirut area said that 41 residential real estate projects, valued at more than $800 million, are currently under construction. These include 695 high-end apartments, totaling 252,820 square meters. Fifty-three percent of the apartments have already sold for a total of $570 million. The report states that five of these projects are private and not for sale, while six other buildings are not priced, since developers are waiting to see how the market will fare. The study also states that 20 projects will be finished this year, with the others handed over in 2011 and 2012. Some 35 percent of the apartments are between 200 and 300 square meters, while 30 percent are between 300 and 400 square meters, 12 percent are between 400 and 500 square meters, 17 percent are below 200 square meters and 6 percent are above 500 square meters. In terms of prices, apartments that have a sea view are averaging more than $9,000 per square meter, with prices decreasing further up Hamra Street, reaching $3,800 per square meter. Most apartments (57 percent) are priced at between $4,000 and $5,000 per square meter.

Palestine re-builds

For the first time in three years Israel allowed a shipment of construction materials to enter the Gaza Strip last month  via the Kerem Shalom crossing in the south, according to Agence France Presse. Palestinian customs official Raed Fattuh told AFP that the shipment carrying wood and aluminum belongs to Palestinian tradesmen and had been stored at the port of Ashdod since mid-2007. Fattuh added that Israel decided to allow shipments of wood and aluminum to enter Gaza every day except Friday and Saturday. Forbidding construction material to enter Gaza has created substantial problems as foreign agencies stopped funding construction projects, causing a housing crisis. “Now foreign donors don’t want to get involved in any project with smuggled concrete brought in — along with a multitude of other goods — through a network of tunnels between Gaza and Egypt,” Mahmud Abed, treasurer at the Palestinian contractors union told AFP. Although Israel also agreed to permit the deliveries of concrete to the UN-mini projects, AFP quoted an Israeli military official saying, “Israel will not allow the reconstruction of Gaza, which we regard as a terrorist entity because it is controlled by Hamas.”

Kuwait gives homes and farms

The Kuwait Fund for Arab Economic Development (KFAED) recently handed over eight newly constructed buildings in Beirut’s southern suburbs, as part of its contribution to the reconstitution of the capital after the July 2006 war, reported Kuwait News Agency (KUNA). Five more buildings are yet to be handed over as part of the $22 million project. Meanwhile, Zakat House Kuwait, a governmental organization, launched an initiative to build a $300,000 livestock farm in the village of Al Sammouniya in northern Lebanon, under sponsorship of the Kuwaiti Ministry of Justice, Awqaf (endowments) and Islamic Affairs. The project will be built in coordination with the Lebanese Alms House for Orphan Care. The farm will be constructed on a 40,000 square meter plot of land and would accommodate 200 head of cattle. Its proceeds will be used for helping orphans, widows and the poor, reported KUNA.

Work may recommence after Nakheel offers 40 percent deal

After a meeting held between the debt-laden developer Nakheel and its trade creditors last month, the company announced that it is offering a portion of repayment in cash (40 percent) and the rest in tradable securities with a 10 percent annual interest. The construction company Arabtec, one of Nakheel’s creditors, told Emirates Business 24|7 that as a result of negotiations work may recommence on the Al Furjan project, which was halted at the beginning of the year after Nakheel’s missed payment; contracting firms like Khansaheb and Six Construct are also in talks with the company to discuss payment schedules. The Dubai government announced in March it was injecting $8 billion into Nakheel to enable it to pay contractors and finish projects.

Egyptian edifices attract investment

According to the organizers of Next Move, the largest real estate investment and finance exhibition in Egypt, the building and construction sector in the country is expected to attract some $7.3 billion worth of investment by 2015. The event’s organizers also said the construction sector and related industries employ some 8 percent of Egypt’s labor force. Moreover, non-residential projects are expected to comprise the largest share of the investment ($6.7 billion). Arab News quoted an Egyptian tourism ministry report stating that since visa regulations tightened for Saudis traveling to the United States and Europe, they have started purchasing properties in Egypt and currently own more than 600,000 flats, mostly in Cairo and around Alexandria.  

Deyaar does the senior shuffle

In the first week of April, the Dubai-based developer Deyaar Development announced the dismissal of chief executive officer Markus Giebel, and his replacement with Saeed Al Qatami, who has been working at the company since 2007 as president of business development.  “The appointment is part of an ongoing management restructuring being undertaken in line with the company’s long-term strategic objective,” said the company in an email statement, according to Dow Jones.  Maktoob News Business revealed that Giebel was not the only one to leave Deyaar. The company’s Chief Financial Officer Krishnamurthy Sundaresan and Vice President of Strategic Planning Dimitre Michev also left last month. Giebel, who was CEO of Deyaar since August 2008, told Maktoob Business that his departure was not related to that of the other executives. “I am leaving on 100 percent good terms,” he said. “Deyaar was my home for one and a half years and I wish the company all the best.”

Summerland hotels swing investment sweetener

In line with its role in promoting and facilitating investment opportunities in different sectors of the Lebanese economy, the Investment Development Authority in Lebanon (IDAL) has granted Summerland hotels a contract deal for a new $155 million project, according to Bank Audi. The package consists of exemptions from real estate registration and the reduction of work permit fees, as well as full tax exemptions on income and distribution of dividends for the next 10 years. The project will include a five-star hotel, a club, a cabin, a gym, as well as a marina for yachts and boats.

Damascus preserves its past

According to Syrian Arab news agency, 11 heritage hotels were inaugurated in the Old City of Damascus last month after being renovated, with no alteration to their original architecture. The restoration of the old hotels cost $22 million and is part of the overall framework to conserve the Old City, known as a tourist hotspot as one of the world’s oldest inhabited cities, said the news agency. The Syrian Minister of Tourism Saadallah Agha al-Qalaa announced that additional hotel projects will be inaugurated by the end of the year to increase the city’s capacity to host visitors. “Tourist utilities would make it possible for millions of tourists to get acquainted with Damascus’ heritage,” he said.

Emaar profits soar in first quarter

Dubai’s largest property developer Emaar Properties issued its first quarter 2010 results last month, recording a 221 percent increase in profits and an 87 percent increase in revenues compared to the same period last year. Total profit for the first quarter amounted to $207 million, while revenues amounted to $786 million. In the company’s statement, Emaar’s Chairman Mohamed Alabbar said that the company’s growth strategy this year would focus on the Middle East, North Africa and South Asian regions, which are home to more than 30 percent of the world’s population.  “Our strategy is to develop integrated lifestyle communities in these markets that meet the growing demand for affordable luxury,” said the chairman.  Despite the positive numbers, Moody’s Investors Service announced in late April that it has assigned a corporate family rating (CFR) and a probability of default rating (PDR) of B1 to Emaar with a negative outlook. Moody’s said that this rating is issued to conclude the review that was initiated on December 8 of last year, in which, pending the conclusion of the appraisal, Emaar was downgraded to B1 and put under review due to decreased government support. “The B1 rating reflects execution risks that Moody’s has identified and that largely relate to the sale of unsold units in Dubai and in international markets, the cash collection of presold property and refinancing,” said Martin Kohlhase, Moody’s Dubai-based assistant vice president.

0 comments
0 FacebookTwitterPinterestEmail