Banking & Finance

IPO Watch – Galfar goes public

by Executive Staff
written by Executive Staff

August’s star attraction in the regional primary market was a construction and engineering group from Oman. Galfar Engineering and Contracting started receiving subscriptions for its month-long public offering on August 12 and its IPO was the largest for the month both in absolute value — $156 million with 100 million shares offered — and even more so in relation to its home market, where the measure is the biggest new equity item in a good while.

Analysts from GCC-based finance firms valued the offering highly. Based on the performance of peers in the construction industry, two finance houses — Gulf Investment Services and Fincorp — estimated the stock’s upside potential at 47-49% over the subscription price, despite its significant issue premium. Included in the offering price of 602 Baizas ($0.165) per share is an issue premium of 500 Baizas, which will provide the company with working capital and funding for expansion.

The Galfar IPO is expected to be oversubscribed by significant margins when it closes on September 10. Subscription rates for other recent IPOs ranged from no oversubscription to more than 10 times the offered amounts.

Another ongoing subscription at time of this writing is for a Kuwaiti logistics firm. A startup company with equity participation from several big names in Kuwaiti trade, Amanah Warehousing Company invited subscriptions for 60% of its capital in a $111.7 million IPO between August 20 and September 17. Amanah’s IPO has a small issue premium and is open only to Kuwaiti investors.

Smaller public offerings ongoing at the turn of August to September are a $19.5 million capital raising effort by Syria’s Al-Aqeelah Takaful Insurance and a $4.2 million effort by a Jordanian construction supplies manufacturer, which was freshly established in June of this year.

In the business of IPO fundraising in the first eight months of 2007, two regional investment banks accounted for major chunks of lead managing in terms of value. Saudi Arabia’s Samba Financial Group and Dubai-based Shuaa Capital reported to have managed amounts of $2.77 billion and $1.6 billion, according to data gathered by business information provider, Zawya. This strong performance was based on the fact that the two firms succeeded in capturing the largest individual deals in GCC markets, including the Kayan Petrochemicals and Kingdom Holding IPOs in case of Samba and the Air Arabia flotation for Shuaa.

In terms of deal numbers, however, the National Commercial Bank and the Banque Saudi Fransi, both headquartered in Riyadh, accounted for just over half of the 23 flotation measures handled by the top ten lead managers up until end of August, with seven (NCB) and five (Saudi Fransi) completed mandates. The top 10 lead managing firms attracted a total of $6.5 billion in IPO business.

IPOs lag behind 2006

By Zawya’s count, some 45 companies this year so far debuted on MENA equity markets through IPOs or equivalent measures. The Saudi primary market with 20 IPOs was the most active, followed by Jordan with eight new entrants on the Amman Stock Exchange.

In year-on-year trends, 2007 IPO numbers appear to lag behind 2006 as exemplified in the case of Saudi Arabia’s Tadawul exchange. According to the 2006 annual report of the Saudi Capital Market Authority (CMA), the kingdom’s wave of going public peaked in 2006 with 62 public offerings for shares worth close to $7.5 billion in total.

As far as initial trading for newly listed stocks went, August was surprisingly strong, defying analysts’ views that the wide gaps between subscription prices and first-day performances are on the way out at least for this month — which turned out to be overall quite atypical in more than one way for a supposedly uneventful vacation time. Of five stocks with trading debuts between August 10 and August 27, the least reported share price gain to August 27 was just over 80% by newly privatized Moroccan real estate firm CGI.

These gains, however, are peanuts when measured against the explosive gains of three Saudi insurance companies. Allied Cooperative Insurance made a first-day show of jumping 997.5% on August 27. That, however, is still nothing compared to the incredible acrobatics of Alahi Takaful Company and Saudi Indian Company for Cooperative Insurance. Alahi, which debuted on August 19, made a one-day gain of 9.94% on August 27 to SR 213 per share.

The same day was Saudi Indian’s second day of trading. Incidentally, it was not a strong day for the Tadawul All Shares Index; it weakened by about 0.4% — but Saudi Indian advanced by 9.96% to a close of SR 132.50. Mind you, the rules for flotation of insurers in Saudi Arabia’s opening of this sector to private operators after a long wait stipulated that the issue price for any insurance stock is at a par value of SR 10 — so Allied Cooperative and Saudi Indian enter the region’s stock market annals with share price gains of more than 120 times and more than 200 times in their first two days and two weeks of trading, respectively.

For Saudi investors, this may be a good moment to note in their agendas that one more insurance company IPO is in the pipeline for the third quarter of 2007. Others, who are barred from buying on Tadawul because they are not legal residents of Saudi Arabia, may observe this highly localized insurance IPO bubble in bewilderment.

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Comment

Is Iran a real threat, or a paper tiger?

by Claude Salhani
written by Claude Salhani

Every which way you turn in Washington these days there is talk of war, all while the President George W. Bush is gearing up for a major Middle East peace conference this fall. Maybe the president is heeding the counsel of Vegetius of ancient Rome who said: “Igitur qui desiderat pacem, praeparet bellum,” or “whoever wishes for peace, let him prepare for war.”

Indeed, those who wish for war are plentiful along the banks of the Potomac. Starting with the Iranian opposition, who have been at the forefront of the leakage of information pertaining to the Islamic republic’s nuclear program.

Alireza Jafarzadeh, an opposition figure with close links to the Mujahedeen-e-Khalq, or the People’s Mujahedeen, the first person to reveal the existence of Iran’s secret processing sites, likes to remind the administration that Iran poses “a very, very serious threat to the free world,” and a country which wants “to extend its influence beyond its borders.”

Yet, much closer to the American president, also counseling for war is Vice President Dick Cheney. The hawkish VP has long preferred the strong arm approach in dealing with Iran over diplomacy. Murmurs around Washington of a possible US and/or Israeli military strike to destroy Iran’s nuclear power sites has recently gotten louder, even if a well-informed source told this reporter that according to senior US intelligence officials, President Bush has definitely decided not to strike any of Iran’s alleged nuclear weapons production facilities this year. That doesn’t mean that military intervention against Iran could not happen next year.

Cheney, it has been reported, wants to see punitive action against Iran before Bush’s term in the White House ends in January 2009. Cheney’s proposal, the sources say has not gotten approval, so far.

Of course a relevant question is whether Iran poses a real threat or is it just a paper tiger? The neoconservatives, their Iranian allies and the pro-Israel lobby, all support the idea of a military strike. However, a well-informed Saudi source told this reporter that the reality paints a very different picture.

“The situation has radically changed in the Gulf, and especially between the Kingdom (of Saudi Arabia) and Iran. Iran is at best a second-grade power and slowly slipping into a third-grade power,” said the source, who requested anonymity.

The source claims that Iran is on the defensive. Now it is Iran who is worried, said the Saudi source. Economically, Saudi Arabia is light years ahead of Iran. Saudi Arabia leads in oil production and exports. In a report carried by Arab News, Abdullah Jumah, the president and chief executive of Saudi Aramco, said the kingdom’s oil output reached 10.7 million barrels per day by the end of 2006. Aramco also added an additional 3.6 billion barrels of oil to its reserves in 2006 and boosted its natural-gas holding by 10.4 trillion standard cubic feet, more than double its initial target.

Iran, according to Oil Minister Kazem Vaziri Hamaneh, increased its crude-oil production by 55,000 bpd in the last year, bringing total output to 4.08 million bpd.

Additionally, unlike Saudi Arabia, Iran lacks the capability of refining its own crude, relying instead on foreign refineries, principally India. Which means a blockade of shipping lanes through the Straits of Hormuz would choke Iran, depriving it of its own oil.

Leading US military strategist Anthony Cordesman thinks Iran’s current military capabilities are “outdated” and “present little current threat to its neighbors.”

“Iran has exaggerated its military capabilities,” Cordesman, of the Washington-based Center for Strategic & International Studies, said during a recent speech to a group of military experts in Abu Dhabi.

“Iran is more focused on national defense than using military power to boost its influence in the region,” he said. Iran represents “a force that has to be taken seriously in the defense of its country, but it has very little capacity to project outside the country,” Cordesman said, adding that Iran’s nuclear program could someday pose a danger but that “any serious threat lies a decade or so away.”

Iran’s ballistic missiles use 1960s technology, making them only accurate enough to “probably” strike a large city, Cordesman said. Their small warheads might only damage a few buildings. The most sophisticated weapons system in Iran’s arsenal are defensive: the Russian-made TOR-M1 air defense systems just purchased from Russia.

Cordesman also contended that tensions in the Gulf were being worsened by US and Israeli leaders overstating the Iranian threat. “The real danger Iran poses would be in an asymmetric capacity perhaps, but not in conventional warfare,” he said.

But it is precisely this asymmetric capacity that has many US and European Union officials worried. Iran has the ability to disrupt — albeit temporarily — the oil flow in the Gulf. And it has the ability to create trouble in Lebanon through Hizbullah. One area of particular concern to the Europeans, primarily the French and Italians, is the vulnerability of the United Nations Interim Force in Lebanon, where Iran could demonstrate its power precisely through asymmetric warfare.

CLAUE SALHANI is Editor of the Middle East Times and a political analyst in Washington, DC

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Consumer Society

Sisters are doing it – For themselves

by Executive Staff
written by Executive Staff

Former jewelry designer Paula Naaman launched her scarf collection seven years ago with only four designs and ended up with more than 40 orders at her first trade fair. While doing a thesis on women imprisoned for prostitution, Sarah Beydoun decided to train them to make handicrafts and offer them a way out of the Game. Thus began the popular Sarah’s Bag label.

Hala Beydoun made her first batch of decorated cookies for her daughter’s birthday. Her friends wanted more. She quit her teaching job and now heads Cocoa and Co, maker of bespoke cookies.

Nada Zeini, a former architect-turned jewelry and accessories designer, used her first creations to decorate her kid’s Christmas tree. Her friends caught on and started wearing them as broaches under the Nounzeh brand (the first letters of her name in Arabic).

Mariana Jammal Bassatne, a communication graduate, decided after designing her second handbag that her passion for beautiful leathers would become her full-time job, while interior designer Nayla Saab-Takieddine’s jewelry, originally designed for her family, was such a hit among her friends that she launched the Or La Loi collection, or The Reign of Gold, a play on French term hors-la-loi originally meaning “outlaw.”

What all these women have in common is that their business expansion was prudent, relying on minimal investment, high margins and reinvestment. Sarah Beydoun started Sarah’s Bag with $200 and the socially conscious appeal of them being made by female prisoners. “I went to my first trade fair with 12 handbags,” remembers Beydoun, who launched her first collection from her brother’s garage in Qasqas before moving to her current store in Gemaizeh. “My friend Maria Hibri then convinced me to attend another exhibition and my collection was completely sold out!” Today, with her partner Sarah Nahouli, she sells “hundreds” of bags each year.

Moving beyond Lebanon

Paula Naaman’s business has grown by solidly ploughing back all profits into the business while Hala Beydoun’s operation followed a steady growth built on her “edible art,” as she likes to call it, which was so successful — her products are now available online, at one outlet, at fairs and upon direct order— that her husband quit his job as a fabric trader to work with her.

Beirut being as it is, all the women rely on word of mouth, websites, trade fairs and the press to spread the retail gospel, although many have moved beyond catering to Beirut’s jeunesse dorée and have begun to explore foreign markets. Most have made the leap via trade fairs and are now selling directly through regional outlets. Naaman’s brand, Paula K, generates 50% to 60% of its income outside Lebanon, mainly in Qatar, Kuwait and Abu Dhabi.

“Since the war, I would say that sales to international clients, made up principally of Arabs and Europeans, have gone up to 60%,” says Zeini whose designs are sold in Egypt, Qatar, Saudi Arabia, Italy, Germany, Belgium, Ireland and Greece. Sarah’s Bags can be found in the Emirates, KSA, Egypt, Kuwait, Qatar and Jordan with foreign sales making up 60% to 70% of the brand’s total turnover. Bassatne’s designs are also sold in the UAE, Saudi Arabia, Singapore, Bangkok, Athens, London, Qatar and Kuwait, with export sales making up 80% of revenues.

With success have come the harsh realities of the international market. The women entrepreneurs all had to learn about rules and regulations, especially when it came to food stuffs. Hala Beydoun had to adjust to the UAE’s stringent rules, while Bassatne faced a similar problem when she tried to export handbags made of banned exotic leathers. There is the additional concern about counterfeiting, which has made a few wary about outsourcing and recruitment. Jewelry designers like Saab-Takieddine have to content with fluctuating gold and diamond prices, while Lebanon’s unstable political situation is a burden for all.

According to figures provided to Executive, the annual Faraya Mzar design exhibition, held every August, which included 75 participants representing different crafts, generated more than $400,000, while total sales at the recent Amman Fair in Jordan, attended by 39 participants, amounted to $250,000. Nayla Bassili, dubbed the “Patron Saint of Lebanese designers” and the organizer of some of the biggest design fairs in Lebanon, underscores that Lebanese exhibitions are also sought after by Arab buyers in their quest for new designers. These fairs, which constitute a meal ticket for many new designers, are open only to Lebanese who design their own items and do not have a point of sale. This emphasis on products “Made in Lebanon” has contributed to modifying perceptions on the local and international levels as high-end customers increasingly wear locally designed items.

It is business after all

Success also means expansion and a more formal structure, not to mention the boring bits of running a business such as sales projections, accounting procedures and business plans. From the formal business model perspective, these women entrepreneurs have integrated some elements, while completely ignoring other aspects. They are heavily reliant on their core competencies, mostly introducing innovative products with a certain edge that appealed to particular market segments.

Most are still working on their structure and feel the need to calibrate work processes and organization in order to take their ventures to the next level. Others, however, feel content with an “artisan’s approach” as Naaman likes to put it. Nonetheless, their distribution strategy has been clearly delineated through hand-picking distributors, mostly exclusive boutiques. They have also done wonders in terms of identifying target market — most seek medium to high end customers with a definite sense of style — and customer relations as they entertain a very personal rapport with their clients on a local level.

The financial aspect is, however, less developed. As most businesses have expanded gradually and show solid cash flows, with profits mainly re-injected into the operations, little formal thought has been given to the matter. But now, as some seek to beef up their operations, this has meant in some cases turning to financial institutions. Hala Beydoun, who is currently preparing her business plan to open her new kitchen, has approached Kafalat. She told Executive that the government subsidized loan only covered her equipment, estimated at 25% of the total investment needed.

Elie Abou Khalil, head of retail banking at Byblos Bank, however, says that Kafalat loans go beyond equipment acquisition and perfectly correspond to the needs of this kind of entrepreneur. The particular line of credit is ideal for craftsmen and women, offering between LL 5 million to LL 600 million over seven years with a 6 to 12 months grace period and a 0% interest. Paul Chucrallah, assistant manager at Byblos Bank, believes that equity financing might present an interesting option for such businesses, although for now, the investments required were still too small for Byblos Ventures equity projects.

“Maybe they could all get together and form a syndicate?” he said.

Now there’s an idea!

 

 

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Editorial

Looking to the profits of tomorrow

by Yasser Akkaoui
written by Yasser Akkaoui

Why should the GCC consider investing in alternative energy? The Gulf nations have enough energy of their own for the foreseeable future, so why dismantle a lucrative and historic revenue stream?

There are, however, three powerful reasons why we should not ignore the current interest in alternative energy.

First, there are the investment opportunities, and last month’s launch of Standard & Poor’s alternative energy index — in which 50 companies from 13 countries with a combined market capitalization of $512.5 billion are represented — is the latest indicator of this potential. Secondly, there is climate change. Traditional energy producers cannot ignore the obvious and by now globally-accepted evidence that our world is changing — heating up and melting down — due to man’s over-reliance on fossil fuels. Thirdly, there are security concerns. The Middle East cannot escape the fact that it is a region with many energy eggs in one creaky and volatile basket. There is every reason to diversify while this low-intensity tension continues to simmer (especially as it looks as if Iran has only got one kind of alternative energy on its mind).

Unlike the technology boom, this is one boat the Arabs cannot afford to miss and it would be fitting that a region so synonymous with energy and wealth should use some of this wealth to lead the way in developing new, safe and responsible ways to power our earth. Then surely the shining new emirates could genuinely take their place at the developed world’s high table.

But they should not drag their heels. In the same way that Silicon Valley led the way for a technological generation, there is a new breed of US-funded research into alternative energy. President George Bush, hardly the greenest leader on Earth, has gone to Brazil three times in to discuss ethanol exports with President De Silva; and this from a man who normally only gets out of bed for Iraq, church and the future of the GOP.

Yes, there will always be resistance — oil producers and the world’s automobile manufacturers are the obvious grumblers as they have most to lose with the incursion of high additional costs required to incorporate newer and cleaner ways to do business. Speaking recently at the American University of Beirut, Nissan and Renault chief, Carlos Ghosn, no doubt wary of who butters his bread, reminded us that in a global industry which sells 65 million cars annually, it is hardly sound business practice to focus on the 300,000 hybrids assembled each year.

Then again, he, too, probably had no alternative.

 

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Lebanon

FEMIP – Helping the private sector

by Executive Staff
written by Executive Staff

Although there was renewed interest in European aid to Lebanon following the Paris III donor conference last January, it is worth remembering that there is a strong tradition in European funded local projects, whether they be under the umbrella of the European neighborhood policy — which currently applies to Europe’s 16 immediate neighbors, with the exception of Russia — or as envisioned by the Barcelona Process, which aspires to deepen relations between the European Union and its southern neighbors with bilateral agreements, leading ultimately to the promotion of a Euro-Mediterranean free trade agreement in 2010. “The European Investment Bank’s (EIB) operations in the Mediterranean partner countries have in fact been brought together under the Facility for Euro-Mediterranean Investment and Partnership (FEMIP) since October 2002,” explained EIB spokes­person Orlando Arango.

Active in Lebanon since 1978, the EIB has invested a total of 800 million euros, especially to reconstruction, water and sanitation infrastructure and transport projects. The total financing by FEMIP in Lebanon between 2002 and 2007 is estimated at around 325 million euros, of which 320 million euros was made up of long-term loans. “FEMIP tends to consider this particular type of financial instrument more adequate for such projects,” said Arango.

The general aid given to the region through the partnership is outlined by an investment strategy in which top priority is given to private sector ventures, whether they stem from purely local initiatives or from foreign direct investment projects. “In order to create an environment, which is favorable to the development of private enterprise, FEMIP also supports infrastructure projects; investments in human capital as well as any scheme specifically targeting environmental protection,” Arango added. The general idea behind FEMIP projects is to provide support to Mediterranean partners enabling them to meet their economic objectives, rise up to the challenges brought by social modernization as well as advance each country’s regional integration. “This ultimately determines financial allocation for each sector and more particularly in the run-up to the creation of a common customs union with the EU by 2010,” he underlines.

Allocations based on country size

However, according to figures released by the European Union, investments in Lebanon occasionally appear to lag behind other countries in the region. Between 2002 and 2006, Morocco, an important EU partner, received 1,040 million euros, while Tunisia got 1,114 million euros. Israel has collected 275 million euros divided among environmental projects and credit lines. The same amount was granted to Lebanon, where the disbursement mainly targeted the transport industry, the environmental sector, while part of the amount covered credit lines. Aid to Jordan consists of 166 million euros divided among various activities such as energy, transport and human capital.

Regional bad boy, Syria, has received 635 million euros between October 2002 and December 2006. This amount was primarily directed toward the energy, transport, telecom and environmental sectors as well as in opening credit lines. “The budget allocated to each country depends however on the size of the economy, the level gross fixed-capital formation (GFCF) and the demand for external financing namely eligible investment projects addressed to the EIB,” Arango defended.

This summer witnessed the one-year anniversary of the July war. The event celebrated as a divine achievement by some, has nonetheless also resulted in sluggish, if not negative growth.

The EIB has also taken into account the added burden of funding part of the recovery and reconstruction processes according to the reform program put forward by the Lebanese government. Over the next five years, 960 million euros will be invested in key projects under the Public Investment Program in support of both the private and public sectors. This amount includes 400 million euros destined to priority transport, wastewater and energy infrastructure projects. “Technical assistance grants will facilitate the preparation and implementation of privatization programs,” said Arango. On the other hand the EIB is allocating 560 million euros to the private sector, an amount that will be channeled trough local Lebanese banks.

“The European Union has also earmarked 5 million euros of its budget for the recently-launched Building Block Equity Fund, to acquire equity in innovative small and medium-sized Lebanese enterprises,” Arango confirmed.

The EIB also intends to develop a venture capital market by assisting Lebanese companies. “This particular type of financing is expected to act as a catalyst in the Lebanese marketplace and promote the inward flow of funds into Lebanon as well as in the region,” he added. To implement efficiently its policy on the local level, EIB has also chosen financial partners including Byblos Bank, Bank of Beirut, Banque Audi, Banque de la Méditerranée, Banque Libano-Française, BBAC, Crédit Lebanaise, First National Bank, Fransabank, Lebanese Canadian Bank, Société Générale de Banque au Liban.

Byblos Ventures gets its start

At Byblos Bank the collaboration has materialized into the Byblos Ventures, the bank’s first equity project worth $20 million at inception. The Byblos Bank Group stake amounts to 50%, partnering the EIB which owns 25% while the remaining equity is divided among other financial institutions. “I would expect the fund to grow to $40 or $50 million,” says Paul Chucrallah, assistant general manger at Byblos Bank. “This equity project is introducing Lebanese companies to alternative financing as well as acting as a financial accelerator,” he added. As Executive went to press, other institutions were signing on the remaining 25%. “The size of each individual investment will vary between $1 and $3 million with an average of 10 to 15 projects to be taken on,” said Chucrallah.

One of the last instruments EIB is relying on pertains to the field of human resources. An internship program has been made available for students from countries in the Mediterranean basin such as Algeria, Egypt, Gaza and the West Bank, Israel, Jordan, Lebanon, Morocco, Syria, Tunisia and Turkey. It provides candidates with an opportunity to improve their skills and boost their experience by exposing them to a multicultural environment. Candidates must either have a degree from an institute of higher education or be enrolled in their final year.

Despite the current government paralysis, many projects are being executed. “Water and sewage installations in North Lebanon have been completed,” confirmed Arango, “while a storm and wastewater drainage network and a sewage treatment plant for the greater Tripoli area has also been further upgraded and developed,” he said, adding that power transport cables in Greater Beirut have also been installed while the motorway linking Tabarja to Tripoli, north of Beirut, has been finalized. This particular road work comprised the rehabilitation of the 38 km existing motorway between Tabarja and Chekka and the construction of the missing 15 km section between Chekka and Tripoli. Other projects include the upgrade and extension of Beirut’s international airport as well the Port of Beirut and the renovation of installations as well as the modernization of Air Traffic Services at the Rafic Hariri International Airport.

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Lebanon

Hotel Sector – Think outside the box

by Executive Staff
written by Executive Staff

It’s hardly been a great tourist summer. According to the numbers published by the ministry of tourism, the number of tourist arrivals in July reached 126,986 compared to 188,465 in 2005. In June, arrivals were down nearly 60% from 2006 which was proving to be a bumper year until the war broke out.

Looking back, growth from 2001 to the beginning of 2005 averaged 20% to 30%. The first six months of 2006 were excellent with 32% growth and 71% occupancy in Beirut before the high summer traveling season. There was not enough time to recover from the war before the string of events that kept Lebanon in the news and resulted in the worst season for 15 years. Occupancy rates were under 20% for the first six months of this year and rising to between 28-35% in August, according to Pierre Achkar, President of the Lebanese Federation of Tourism and Hotel Associations and owner of the Monroe Hotel, the Markazia Monroe Suites and Printania Palace in Broumana. “When you are running below 45%, you are losing a lot of money.” From the war to the present, estimated damages to the tourism sector hover around $286 million.

In the BCD, an area once touted as the new hotel epicenter but which has now become Camp Solidere, home to an eight month demo, the squatters have succeeded in crippling at least two hotels and forcing nearly 200 businesses to close their doors. The Markazia Monroe Suites has had no clients since the protest began in December 2006. The hotel used to employ around 140 people but in the present situation, it is paying the salaries of 16 department heads just to keep them from going abroad. “How long can we hold out? Nobody knows. Do we have a financial problem? Yes. Are we going to be helped by the government? We don’t know,” says Achkar, who is considering legal action against the government for the sit-in. “When it lasts six to eight months, it’s illegal,” he argues. “They are impinging on my freedom.”

Owners need some assistance

Marwan Kairuz, chairman of Etoile Suites, also in the BCD, thought that he had escaped the losses of last summer when his hotel was fully booked by journalists. After the war his regular business returned, but once the sit-in began, it was game over. The streets were blocked and guests couldn’t access the hotel. As the protests dwindled and a few streets re-opened, he was able to achieve about 10-20% occupancy. In mid-August of this year the occupancy rate rose to around 40 to 50%, but at a price: today the average room rate is $80 compared to $220 in 2006 and $300 in 2005, while he has had to let go 70% of his staff. “We are losing money,” he said and admitted that he might have to sell some of his equity in the business.

Achkar believes that there should be greater responsibility on the part of the government to assist hotel owners because of the indirect destruction. He is asking that at the very least special loans should be provided with 0% interest for seven to ten years with owners keeping their managing interest. He believes that without this some will go out of business or the banks will move in. The syndicate has also asked the government for special electricity rates but the best the government can do is to offer the sector subsidized loans at 4%.

The brain drain is also having a negative impact, with many of Lebanon’s 120,000 tourism workers being lured to the Gulf. “I think that a lot of people working in the Gulf will be back,” says Achkar. “I have 40 former employees working in Qatar and Saudi Arabia and they tell me that the salary is only 10-20% more than that here.”

Think outside the box

The catch phrase this year for most four and five-star hotels is to “think outside the box” and focus on non-core activities such as weddings, with bookings staying steady at 2005 levels. The Mövenpick Hotel and Resort told Executive that 65 weddings were booked from July to September and that they are catering up to three a day on weekends.

Four and five-star hotels are in great locations with a full array of outlets such as high end restaurants, spas, gyms, and shopping areas — all the things one needs to take their mind off the stresses of the day. Mövenpick is one of them. Says Mira Hawa, director of sales and marketing, “[We] have been deriving business in different ways.”

Earlier this year, Mövenpick also ran a campaign in which local Lebanese were encouraged to stay and use the spa and generally pamper themselves. That campaign generated almost $65,000. Other promotions include a summer kid’s camp and “Me Time” at the Essential Spa for busy career women and mothers. Occupancy reached 65% in mid-August and they are expecting a healthy average of 50-55% for the year.

The management at the Metropolitan in Sin el-Fil has been relying on the boulevard shopping mall, the Elixia Spa and Habtoorland amusement park to keep them afloat. Last year, the Habtoor Grand Tower closed leaving only the Metropolitan Palace’s 200 rooms open for business. In August the hotel was running at a respectable 60% occupancy. It has also partnered with Middle East Airlines on a promotion for MEA ticket holders to stay four nights for the price of three.

Hotels outside Beirut such as Le Royal in Jounieh maintain they are at 50% occupancy in August, while Grand Hills in Broumana and Mzaar Intercontinental near Faraya are offering weekend getaway packages for two including a room, meals and spa treatment. Although these are normally off-season promotions, this year they have had no choice. Business has to tick over and the good news is that many Lebanese are taking advantage of the prices.

MICE (meetings, incentives, conventions and exhibitions) events have taken place but in smaller numbers with fewer participants. This is a staple for the industry particularly in the spring and fall. Mark Timbrell, general manager of Gefinor Rotana, told Executive that business never ceases and that he is quietly optimistic. While travel warnings may discourage US or European business travelers, local syndicates and associations will continue to hold their conferences, meetings and seminars. Le Royal is focusing on MICE for their target market this fall. Joyce Mouwad, director of sales and marketing for Le Royal said that for 2008 the same number of conferences are still being booked.

For the future, all agreed that recovery depends on stability to gain consumer confidence and this in large part depends on a successful presidential election. Until then the sector will continue to be creative and hang on in there.

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Lebanon

Software development industry – Ahead of GITEX

by Executive Staff
written by Executive Staff

For techies, the GITEX, the annual information technology exhibition in Dubai, is one of the top three exhibitions in the world. It has steadily grown from 939 companies being represented in 2004 to 1,353 in 2006, with 133,139 visitors from 119 countries. The growth of GITEX reflects that of the MENA region overall as the third fastest growing IT market in the world after India and China. This year has already been sold out and will be the biggest exhibition ever in its history. At least 25 Lebanese firms have signed up along with a new conglomerate of companies known as Lebanon SoftShore.

GITEX is the place where developers unveil their latest designs such as Software Design Consulting Group’s (SDCG) Visual Dolphin Retail, that will allow retailers to manage their total business from the register, tax collection, inventory status and customer/supplier data. According to Raymonde El-Hayek Warde, general manager of SDCG, her company has participated in GITEX for 10 years and experienced constant growth that is “due in large part to the opportunities that GITEX offered in terms of exposure and importance in the Middle East.”

For others who are in the early stages of expansion to the Gulf and Arab counties, such as New Information Technology (NIT), GITEX provides the platform they need, said its managing director Selim Jamaty. NIT developed SoftPharm, a software package for pharmacies, and has achieved a market penetration rate of 97% in Lebanon. Now it is time to go to the Gulf.

Big things are happening on the Lebanese front in software development, an industry that has been able to withstand the many economic pressures facing the country. According to a 2001 Professional Computer Association’s assessment, the IT sector was estimated at $245 million with the software industry making up 14% or $34 million. Hardware and infrastructure made up the lion’s share of 58% and service another 28%. At the time, exports made up only 9%.

Focus on exports

Today, things have changed with exports accounting for the majority of business with few firms concentrating solely on the Lebanese market. Statistics on the ICT sector are hard to come by as there have been no recent studies to provide an accurate size of the industry. According to Joe Abi-Aad, president of the Association of the Lebanese Software Industry (ALSI), the sector is sorely in need of one but in the meantime independent estimates range from $250 million (Oxford Business Group 2005) with aggregate growth of the software development sector estimated at around 10% annually, to $320 million (ITG Group).

According to Abi-Aad, between 2001 and 2004 the market experienced a slight decline that coincided with the burst of the global technology bubble. Since then, members of ALSI have reported growth ranging from 5% at the lower end and up to 80% for the most successful firms who are outsourcing to the US, the EU and the Gulf. It is a burgeoning trend as developers can no longer rely on a cash-strapped Lebanese market where smaller clients are beginning to default on payment schedules. Both Fady Geagea, manager of Profiles Software Company and Nader Abdallah, general manager of Anzima, which has been serving the GCC since 2003, said doing business in the Gulf was critical for their survival in this current climate.

Another firm which had to deal with the economic fall-out from last summer’s war has opened up shop in China. Carole al-Sharabati, managing partner of software developers CME, said that they needed a back-up office for their clients overseas because of the instability in and risk perception of Lebanon. Also, the lower wages in China have helped her firm to increase international competitiveness.

One major development in the sector is the Euro-Lebanese Center for Industrial Modernization’s (ELCIM) initiative to create Lebanon SoftShore — The Software Cluster (LSS), a conglomerate of Lebanese software developers. LSS was formed this year as a means to strengthen Lebanon’s competitiveness abroad and provide Lebanese firms with a platform for greater exposure and organization to bring big outsourcing projects to the industry. So far 17 firms have joined the cluster, focusing on markets in the GCC, EU (mainly France, Switzerland and UK) and the US. LSS is headed by ELCIM and will pool the resources of the cluster members. ELCIM will promote the cluster members abroad and direct large projects.

Joining hands

For members like al-Sharabati of CME, “it is an opportunity to join hands and collaborate in a number of areas.” She views the cluster as a forum to exchange information and work together where she can assist other firms in expanding to the US while she hopes to gain exposure to the European market.

According to Talal Hijazi, coordinator of the software manufacturing sector for ELCIM, one of the advantages Lebanon has over many competing countries is its ability to develop software in many languages.

There are drawbacks to operating in Lebanon. Al-Sharabati’s firm pays $3,500 per month for a connection that in the US would not cost more than $100. Furthermore, the lines are unreliable and neither fast nor wide enough. Electricity prices have also increased along with those for generator services. Both — internet and electricity — are fundamental for the industry and their low quality a severe problem.

The greatest danger facing the industry is emigration. Most firms report difficulties to retain qualified engineers and developers. Al-Sharabati said that most young professionals are concerned only about the short term as a result of the recent instability and are therefore short-sighted when it comes to building a solid career, preferring instead to hop from one job to the next with their ultimate sight on going abroad.

As companies continue to grow, the demand for more engineers grows concomitantly leaving the market constrained by the lack of seasoned professionals. Few engineers with three to five years of experience can be found.

Software giants Microsoft and Cisco are working to address this problem through their Partnership for Lebanon that also includes GHAFARI Inc., Intel Corporation and Occidental Petroleum Corporation. The Partnership for Lebanon is focused on a number of issues to assist the Lebanese market ranging from educational initiatives to funding the private firms’ expansion efforts.

The partnership members recently announced that they will offer training programs for the IT sector — in cooperation with the Council for Development and Reconstruction — for students to help them acquire the skills and experience they need in the expanding market.

According to Hussam Kayyal, program director of corporate citizenship at Cisco, they were shocked when talking to high school students to find out that none of them were planning to stay and work in Lebanon. Since then, they have stressed to students the potential of the local sector through training and education.

Gender trends

Perhaps the most interesting trend is the issue of gender in IT. Female engineers are taking on the industry and shifting it from what was traditionally a male-dominated sphere to a more mixed one. According to al-Sharabati, the industry allows for much needed flexibility especially for females from more conservative backgrounds. CME is facing the issue that some young women have curfews imposed on them by their families and must be home by 5 p.m. Through telecommuting via the internet, these women can finish their work at home. Women are also less likely to move abroad for work and thus are becoming ever more attractive on the local market.

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Global Arab finance comes of age

by Riad Al-Khouri
written by Riad Al-Khouri

Surplus cash from Middle East energy producing countries has been running around the world for over three decades, seeking better returns in offshore havens. However, since the 1970s, investments by Arab states have had the potential to alarm destination countries. An important example of this came after the Kuwaitis acquired about 20% of British Petroleum in 1988 and the UK forced them to reduce the holding by over half, amid concerns about OPEC member influence on one of the world’s giant oil companies.

More recently, Dubai Ports World (DPW) faced the American Congress’ opposition to acquisition of US ports; the controversy started in early 2006 with some Americans arguing that no Arab government should own such strategic assets. Later that year, DPW pulled out and sold its US port operations to an American group.

The DPW controversy reinforced fears that investments in the West had become politically risky for Arabs. However, part of the problem there seems to have been the high-profile hands-on status of the investor, and the answer may be to deployment of state money in subtler ways.

Giving mounting surpluses, this issue will undoubtedly become even more important in the next few years as Sovereign Wealth Funds (SWFs) of Arab countries roam the globe looking even more assiduously for investments. Previously, most Gulf countries had put their liquid assets (mainly dollars) in bank deposits or government bonds, typically American. However, Arab state agencies have been getting fidgety over the value of greenback deposits and American federal securities; so many Gulf SWFs are increasingly moving money into global equity markets.

The largest sovereign fund may be the Abu Dhabi Investment Authority, with as much as $500 billion under management, with Saudi Arabian SWFs not far behind. The Kuwait Investment Authority, created in 1960 to invest the emirate’s oil revenues, has accumulated more than $100 billion of assets; big Arab sovereign funds also include the Qatar Investment Authority with $40 billion, and UAE SWFs outside Abu Dhabi.

With oil revenues gushing in, these SWFs feel that their governments hold enough dollar-denominated government bonds, and so will increasingly target Western shares. A recent example came two months ago when France, Germany, and Spain welcomed Arab SWF money into the European Aeronautic Defense and Space Company (EADS), the world’s second largest aerospace conglomerate. The group includes the aircraft manufacturer Airbus, the world’s largest helicopter supplier Eurocopter, and EADS Astrium, the European leader in space programs. EADS is also the major partner in the Eurofighter consortium, develops the A400M military transport aircraft, and holds a stake in a joint venture that is the international leader in missile systems.

The $2 billion Global Strategic Equities Fund (GSEF) founded and sponsored by Dubai International Capital (DIC), the international investment arm of the state-owned firm Dubai Holding, acquired over 3% of the outstanding share capital of EADS, allowing the SWF to become one of the largest institutional shareholders in the company. In line with GSEF’s investment strategy, neither the fund nor DIC will seek a board seat or take an active role with EADS but will “build a strategic relationship with the EADS management and shareholders.”

This transaction comes less than two months after GSEF made a substantial investment in HSBC Bank Middle East, becoming one of the leading shareholders in the company. Another major investment by DIC, GSEF’s parent, was the $1.3 billion acquisition of the Doncasters Group (UK), which produces precision engineering components. Most important, target firms and host countries mostly welcomed these and other deals.

The bad news is that growth in Arab SWFs could create new risks for the global financial system, as opaque investment policies could mean that comments or rumors would tend to increase volatility in capital markets. In addition, in autocracies like the Gulf countries, officials imperfectly accountable to those for whom they are ultimately investing run the funds.

To counter these negative factors, SWFs need to be more open and commercially minded. The Norwegian Government Pension Fund, which invests much of the country’s oil riches, and is now worth over $300 billion, is a model of good governance and accountability, listing all 3,500 investments on its website; the fund’s stakes are typically small in each company so, far from feeling threatened by its investments, firms often welcome it. This seems to be the strategy of DIC, which is also aiming for greater transparency: if the deals of Arab SWFs are not to trigger protectionism, they must become transparent.

In any case, Arab SWFs are so large that a change in their investment strategy away from bonds and toward stocks could eventually cause prices to go up in major equities. In the present troubled state of the markets, this will be a good thing: as the financial acumen of Arab SWFs increases, so will the attraction of investments cleverly presented as saviors of Western interests.

RIAD AL KHOURI is the Director of MEBA w11, Amman, and Senior Associate of BNI Ltd, New York City

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Iran’s upcoming election

by Gareth Smith
written by Gareth Smith

The campaign for Iran’s next parliamentary campaign will not start officially until a couple of weeks before the poll in March 2008, but rising political temperatures in Tehran suggest the battle has already begun.

Conservative websites have been running a video allegedly showing former president Mohammad Khatami, still a leading reformist, shaking hands with women. President Mahmoud Ahmadinejad, under criticism over his economic management, has removed two important ministers to give fresh direction to his government. And the judiciary has once again banned Shargh, the lively reformist daily newspaper that regularly lampooned the president and his allies.

The attacks on Mr. Khatami show Iran’s conservatives are firmly on the defensive, says Mohammad Ali Abtahi, a vice-president when Khatami led Iran through an eight-year reformist era between 1997 and 2005.

“They have realized there is a chance he could run again in the 2009 presidential elections,” says Abtahi, who backs the idea. “But that’s two years away, and first we must pass the test of the Majlis [parliament] election.”

Conservative nerves over the Majlis poll result from the united front put forward by the reformists last December in elections both for local councils and for the Khobregan, or Assembly of Experts, the clerical body that chooses and supervises Iran’s supreme leader.

Drawing up common center-left lists for the parliamentary election is being entrusted to regular meetings of Khatami, the former parliamentary speaker Mehdi Karrubi, and the influential former president Akbar Hashemi Rafsanjani, who has gravitated towards the reformist camp because of his alarm at the policies and behavior of Ahmadinejad.

But the conservatives still say they are confident of keeping a majority — albeit a reduced one — in the 290-seat parliament.

Amir Mohebian, the wily political editor of Resalat, the conservative daily newspaper, believes the reformists’ chances are also hampered by a failure to go beyond calls for social freedom, and by their concentration on big cities rather than smaller towns and villages. “Tribal and family factors remain important in much of the country and usually decide who is elected,” he says.

Mohebian, a keen reader of Nicolo Machiavelli, sees the ageing of baby-boomers born in the early years after the 1979 Islamic Revolution as a key factor in Iranian politics — and one that naturally favors the conservatives.

“When voters are 17 or 18, they care about self-esteem and freedom of speech,” he says. “When they’re 25 to 26 they want new policies about daily life — marriage, getting a home and so on. As people age, they naturally become more conservative.”

Karrubi surprised many fellow reformists by running his presidential campaign in 2005 on a simple promise to give everyone above 15 a monthly pay-out of 50,000 tomans (just over $50) from Iran’s growing oil revenue. But even though he came within 700,000 votes of beating Mr. Ahmadinejad into the second round run-off, the reformists have been slow to develop policies on day-to-day economic issues.

“In politics, you must choose your customers, and in a democracy this means the ordinary people — the reformists’ slogans about social freedoms are still for the elites,” says Mohebian.

Another problem for the reformists is that their energies are being lost in worrying over their candidates being blocked by the Guardian Council, a constitutional body that vets hopefuls. Precedents are mixed. The last parliamentary election in 2004 saw mass disqualifications, but in the presidential election of 2005, Ayatollah Ali Khamenei, the supreme leader, intervened to allow two reformists run after the council disqualified them.

“We have two problems — disqualifications and the fear of disqualifications,” says Abtahi. “We are looking for well-known people. But those who are unlikely to be disqualified are often those least keen on facing character assassination — this results from the film of Khatami [shaking hands with women].”

A competitive election could encourage a high turnout, which would be an important boost for Iran as it faces growing international pressure led by the United States over its controversial nuclear program. The last Majlis election saw around 51% of eligible voters at the polls, despite calls from some reformists for a boycott, although the turnout was only 18% in Tehran.

Turnout in the keenly fought presidential election two years ago was 63%, which Iranian analysts pointed out was comfortably higher than the 55% of eligible Americans who voted in the US presidential poll of 2004, which gave George W. Bush his second term.

But while March’s parliamentary election will be fought primarily on domestic and even local issues, the international situation remains an imponderable. Further sanctions from the UN and unilateral measures from the US might encourage voters to back the reformists, who have advocated a more cautious approach, but they might just just as easily favor the conservatives who can more easily easily wrap themselves in the flag.
GARETH SMYTH is the Financial Times Tehran correspondent

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Financial Indicators

by Executive Editors
written by Executive Editors

Un Under the shadow of the non-event of St. Cloud that failed to generate any improvement to Lebanon’s crippling disease of politics, the Beirut Stock Exchange did what it has been doing in the first half of the year: hang on by its teeth, gums bleeding. The BSI capped at 1172.86 on Jul 26, July trading volumes were largely insignificant. Report-worthy movements in the banking sector included the competition among local banks to buy the domestic business of BLC from the Qatar Investment Authority and the acquisition of Banque de la Bekaa by Bank of Sharjah (BoS) for $25 million. BoS essentially acquired a license which it wants to use to build an operation in the Levant. As far as stock market confidence indicators go, first-half 2007 findings by the semi-annual MasterIndex survey gave 20.5 out of 100 points in consumer confidence to the BSE (data were collected in April). That’s a drop of 63% from six months ­earlier. Compared with other Arab markets in the survey, the BSE scored 60 to 74 points lower.

Beirut SE: Blom  (1 month)

Current Year High: 1,526.31         Current Year Low: 1,168.36

n The Amman Stock Exchange Index closed at 5,682.08 points on July 26, some 177 points lower than its July 1 closing. In year-to-date sector performance, the financial services sector made the weakest showing, down by almost 11%. Hospitality, mining, and real estate are still up more than the general index YTD, banks are barely holding their ground. Heavyweight Arab Bank led trading volumes but its share price moved down 5% in the course of July. Noteworthy transactions included a $440 million block trade in stock of HBTF. Financial services firm First Jordan Investment, an affiliate of Kuwait’s Global Investment House, carried out the subscription for its $85 million initial public offering between July 10 and 23, about eight months later than announced in first plans for the step. Saudi food conglomerate Savola and real estate firm Tameer Jordan entered an agreement by which Savola is expected to acquire 5% of Tameer.

Amman SE  (1 month)

Current Year High: 6,543.67         Current Year Low: 5,267.27

 Straying upwards but a little from its plateau in the mid 3,500 points, the ADSM index closed at 3574.54 points on July 26, less than 20 points better than its 3,556.21 points at the first of the month. Summertime vacation pressures pushed the first-half disclosure season into high gear from early in the month while trading volumes tended lower. While in Dubai the new banking partners Emirates Banking Group and National Bank of Dubai proceeded with their merger to become Emirates NBD on rationale of gaining more oomph and regional profile, local champion National Bank of Abu Dhabi released second-quarter results that showed a 16% increase in profits to $160 million, saying that domestic banking was its biggest growth driver.   

Abu Dhabi SM  (1 month)

Current Year High: 3,705.32         Current Year Low: 2,839.16

The Dubai Financial Market closed at 4332.31 points on July 26, its lowest stand in two months. Earlier in July, however, it had touched its highest level in over eight months, at 4549.4 points. Air Arabia started trading with high volumes but limited gains. Emaar Properties, whose first-half results were to the dislike of share buyers, was sent 7% lower between its July 15 results disclosure and July 26. Early in the month, the DFM released a list of 13 most actively traded stocks in the first half of 2007. Including usual suspects in real estate, finance, communications and transport, companies on the “More Active Stocks” list are given a higher ceiling of 15% as daily fluctuation limit; other stocks have a ceiling of 5%. An important non-event from an international equity angle was the decision by DP World to drop its listing plans on the London Stock Exchange, judging bond financing more advantageous than the intended IPO. 

Dubai FM  (1 month)

Current Year High: 4,985.39         Current Year Low: 3,658.13

The Kuwait Stock Exchange soared on, reaching P/E levels that made some listed stock appear overpriced to regional and international analysts. Up by 24.08% from the start of the year, the KSE closed at a new record of 12,491.10 points on July 25. Its index gain in the course of the month amounted to 445.3 points, representing an increase of 3.7%. Financial firms provided serial cross border expansion announcements. Investment Dar received approval to establish an Islamic bank in Bahrain with $200 million capital. National Bank of Kuwait stated it is negotiating a deal to buy an unnamed bank in Turkey. Commercial Bank of Kuwait said it will buy 25% in a small Yemeni bank jointly with the IFC. Blue chip telecommunications stock MTC had a string of five sessions at the down limit after its second quarter profit disappointed investors but recovered some ground at the end of the month. On strong revenues from asset sales, KIPCO posted a 2.5 times higher net profit for the second quarter 2007 at $96.2 million.

Kuwait SE  (1 month)

Current Year High: 12,491.10       Current Year Low: 9,164.30

The SSE tried for another recovery before the full heat of the summer vacation. Although still trailing everyone else in the GCC as the only Gulf bourse ending July lower than its index level at the start of the year, the TASI improved rather nicely from 6,900.50 points on July 1 to a closing at 7,633.54 points on July 26. Sabic announced 42% higher Q2 net profit at $1.7 billion. The share price of Sahara Petrochemicals rose before a bonus share issue and slumped afterwards. Four new insurers entered the fold of listed firms and Prince Al-Waleed bin Talal’s Kingdom Holding, whose 5% initial public offering was covered two-and-a-half times by demand earlier in the month, announced its rather speedy start of trading on the SSE for July 29, which should make it the 100th company on the bourse. The Wall Street Journal, seemingly determined to ruffle some feathers in the desert kingdom, published a major story alleging links between Al-Rajhi Bank and terrorism finance.

Saudi Arabia SE  (1 month)

Current Year High: 11,709.10       Current Year Low: 6,861.80

The Muscat Securities Market appeared a tad under the weather toward the end of July. The index advanced from 6,314.17 points on July 1 to a year and all time-high of 6,504.18 points mid-month before softening to 6431.31 on July 26. The market is also up by 15% year-to-date. Oman United Insurance reported a first-half net loss of $5.2 million, on account of claims related to cyclone Gonu. BankMuscat reported net profit of $104 million (44% up year-on-year); National Bank of Oman and Raysut Cement came in with first-half profit gains of 46% and 35% while several smaller firms also posted good results. Kuwait’s Global Investment House made a bid to buy 51% in Omani pipe maker Al-Jazeera Steel Products.

Muscat SM  (1 month)

Current Year High: 6,504.18         Current Year Low: 4,718.74

The Bahrain Stock Exchange was not to stand behind its larger neighbor in Kuwait and produced a record performance, soaring from 2410.87 index points at the start of the month to a new historic peak of 2,503.03 points on July 26. Although at all-time best mark, commotion over the good performance was noticeably less than similar successes had been hailed during the 2005/2006 GCC markets boom. Market heavyweight Batelco contributed to the market performance with respectable profit gains and announcement of a new regional expansion strategy which it termed “niche-growth.” A corporate Kuwaiti shareholder in Bahrain’s largest listed bank, Ahli United Bank, received an acquisition offer for his stake from International Bank of Qatar, a privately-held commercial and retail bank in Qatar with four branches.

Bahrain SE  (1 month)

Current Year High: 2,503.03         Current Year Low: 2,047.28

The Doha Securities Market lost a bit of steam in the second half of July. After a climb from 7,432.54 points on July 1 to near 8,000 points on July 9, the index retreated in the rest of the month to a July 26 closing at 7569.59. The market is still among the weaker performers in the GCC this year, up by about 6% year-to-date. Industries Qatar helped the DSM to some rosy moments towards the end of the month with a substantive improvement in first-half profit. IQ and QTEL are among Gulf stocks favored by investment analysts of Credit Suisse. DSM regulators announced that they will from this month on post all information on stock trades by executives and board members in listed companies on the DSM website and market monitors. Internationally, Qatar attracted attention with its ambition to buy UK supermarket chain, Sainsbury.

Doha SM: Qatar  (1 month)

Current Year High: 7,997.53         Current Year Low: 5,825.80

The Tunisian Exchange registered negative movement that saw the Tunindex tumble 3% in the course of the month, from 2509.79 points on July 2 to 2437.21 points on July 26. After recording a historic peak in February, the bourse has not made any significant gains in four months and closed July on 4.55% up compared with the start of 2007. Market heavyweight SFBT traded lower after a 5-for-1 stock split on July 8; its share price weakened by about 12% in the two weeks afterwards. The market saw an initial public offering in July by industrial manufacturer Tunisie Profiles Aluminium. The company put 4.8 million shares, representing 16% of equity, on the market for $15.5 million. Subscription closed on July 24, with no oversubscription reported.

Tunis SE  (1 month)

Current Year High: 2,712.33         Current Year Low: 1,909.26

The Casablanca All Shares Index trained further in its quickstep sideways dance, starting the month at 11,374.11 points on July 2 and closing at 11,394.32 points on July 26. Initiating the exchange’s most significant primary market action in some time state-owned real estate firm CGI (Compagnie Generale Immobiliere) put 20% of its shares on the market in an initial public offering cum capital increase worth $428 million. Subscription closed on July 27. In industrial news, American paper manufacturer International Paper paid $40 million to buy the 35% stake in local sector company Compagnie Marocaine des Bois et Matériaux which it did not yet own.

Casablanca SE All Shares  (1 month)

Current Year High: 12,723.23       Current Year Low: 7,029.45

After a month-long rally which saw the Hermes Index scale a new record at 74,964.86 points on July 10, CASE closed at 74,390.06 on July 26. Volume performers included the Orascom group companies in telecommunications and construction. Orascom Telecom Holding placed a formal $120 million bid offer to sector company Raya on July 22 but the firm rejected the offer as too low. More attention grabbers were in the banking sector, where CIB was reported in newspapers to be negotiating a merger with Arab-African International Bank (owned mostly by the governments of Egypt and Kuwait), which would create a new strong domestic banking player with 8% market share by assets. CIB shares rallied. In another development, the government said it would bust the chains of Banque du Caire and sell 80% of one of Egypt’s top banks. The move values Banque du Caire at above $2 billion and replaces a plan of merging it with Bank Misr, which would have been too costly in terms of money, network restructuring, and employment impact. 

Cairo SE: Hermes  (1 month)

Current Year High: 74,964.86       Current Year Low: 49,705.98

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