THE LEBANON BRIEF. ISSUE 956 Week of February 15-20, 2016

Transcription

1 Your Investment Reference THE LEBANON BRIEF ISSUE 956 Week of February 15-20, 2016 ECONOMIC RESEARCH DEPARTMENT BLOMINVEST Bank Headquarters Bab Idriss, Beirut, Lebanon T (01) /2 F (+961) research@blominvestbank.com

2 TABLE OF CONTENT FINANCIAL MARKETS 1 Equity Market 1 Foreign Exchange Market 3 Money & Treasury Bills Markets 3 Eurobond Market 4 ECONOMIC NEWS 5 Port of Beirut s Revenues Up to $18.37M in January Public Debt Rose by a Yearly 5.63% to $70.3B in The Value of Kafalat Guarantees Rose to $7.93M in January Slump in Oil Prices Alleviates Transfers to EDL to $888.37M by September CORPORATE DEVELOPMENTS 8 Baalbaki Chemical Industries (BCI) Acquires Italian House Polysystem 8 FOCUS IN BRIEF 9 Lebanese Gas Stations: Tied with Regulation 9 This report is published for information purposes only. The information herein has been compiled from, or based upon sources we believe to be reliable, but we do not guarantee or accept responsibility for its completeness or accuracy. This document should not be construed as a solicitation to take part in any investment, or as constituting any representation or warranty on our part. The consequences of any action taken on the basis of information contained herein are solely the responsibility of the recipient.

3 The Lebanon Brief Page 1 of 11 FINANCIAL MARKETS Equity Market Stock Market 91/02/ /02/2016 % Change BLOM Stock Index* 1, , % Average Traded Volume 168, , % Average Traded Value 931,490 2,005, % *22 January 1996 = 1000 BLOM Stock Index The positive momentum of the Lebanese bourse continued for the third week in a row following improving performance in the banking, real estate and industrial sectors. The BLOM Stock Index (BSI) added a weekly 0.38% to 1, points, narrowing its year-todate loss to 0.23% HI: 1, Hence, market capitalization rose by $36.75M to $9.63B while the average daily traded volume fell from 218,411 shares valued at $2.01M to 168,573 shares worth $931, Feb-15 May-15 Aug-15 Nov-15 Feb-16 Banking Sector Mkt 91/02/ /02/2016 % Change BLOM (GDR) BSE $9.99 $ % BLOM Listed BSE $9.60 $ % BLOM (GDR) LSE $9.90 $ % Audi (GDR) BSE $6.15 $ % Audi Listed BSE $6.21 $ % Audi (GDR) LSE $6.15 $ % Byblos (C) BSE $1.64 $ % Byblos (GDR) LSE $75.00 $ % Bank of Beirut (C) BSE $18.75 $ % BLC (C) BSE $1.70 $ % Fransabank (B) OTC $27.00 $ % BEMO (C) BSE $1.90 $ % Mkt 91/02/ /02/2016 % Change Banks Preferred Shares Index * % Audi Pref. F BSE $ $ % Audi Pref. G BSE $ $ % Audi Pref. H BSE $ $ % Byblos Preferred 08 BSE $ $ % Byblos Preferred 09 BSE $ $ % Bank of Beirut Pref. I BSE $26.50 $ % Bank of Beirut Pref. H BSE $26.50 $ % Bank of Beirut Pref. J BSE $26.50 $ % BLOM Preferred 2011 BSE $10.15 $ % BEMO Preferred 2013 BSE $ $ % 25 August 2006 = 100 LO: 1, International and regional equity markets rebounded after a slight recovery in global oil prices this week. As a matter of fact, investors hopes rose this week following potential breakthrough in the global oil output impasse. In this context, the S&P Pan Arab Composite Large-Mid-Cap Index recovered last week s loss recording a 3.25% weekly upturn, while the Morgan Stanley Emerging Markets Index (MSCI) and the S&P AFE 40 Index posted respective 4.66% and 3.60% weekly gains. In the Arab world, stock markets also reflected optimism regarding a possible global agreement between oil producers on freezing oil production at January s level. In fact, the effect of credit ratings downgrades for Saudi Arabia, Oman and Bahrain this week passed unnoticed with the bourses of the 3 countries respectively recording weekly rises of 3.94%, 1.15% and 0.52%. However, Qatar stock market was the week s biggest winner following a 5.07% weekly increase, while Amman s stock exchange was the week s sole loser after dropping by 0.43% from last week s level. On the Beirut Stock Exchange, the banking sector accounted for 84.27% of the week s traded value, while the real estate and industrial sectors respectively contributed to 15.32% and 0.41% of the total. In the banking sector, Audi s listed shares and Global Depository Receipts (GDR) progressed this

4 The Lebanon Brief Page 2 of 11 Real Estate Mkt 91/02/ /02/2016 % Change Solidere (A) BSE $10.24 $ % Solidere (B) BSE $10.12 $ % Solidere (GDR) LSE $9.85 $ % Manufacturing Sector Mkt 91/02/ /02/2016 % Change HOLCIM Liban BSE $14.36 $ % Ciments Blancs (B) BSE $3.50 $ % Ciments Blancs (N) BSE $3.10 $ % Retail Sector Mkt 91/02/ /02/2016 % Change YMCO BSE $3.23 $ % BC (New) OTC $27.00 $ % week by 0.82% and 0.65% to $6.15 and $6.21, respectively. In contrast, the GDRs of BLOM and the listed shares of Byblos slipped by weekly 0.10% and 0.61% to $9.99 and $1.64, respectively. On the LSE, Solidere GDRs gained 2.07% during the week to $9.85. Meanwhile BLOM and Audi GDRs lost 1.00% and 8.21% to end the week at $9.90 and $6.15, respectively. On another front, the BLOM Preferred Shares Index (BPSI) remained at last week s level of points as no price changes were recorded on the Lebanese preferred shares this week. The real estate sector saw positive performance this week as both Solidere shares class A and B added 1.79% and 1.20% to $10.24 and $10.12, respectively. In the industrial sector, HOLCIM shares inched up by 0.07% to end the week at $ In the coming weeks, the Beirut Stock Exchange is expected to keep on mimicking investors perspective regarding any concrete development that may help in unfolding the direction of the political situation and the continuing presidential stalemate. Tourism Sector Mkt 91/02/ /02/2016 % Change Casino Du Liban OTC $ $ % SGHL OTC $7.00 $ %

5 The Lebanon Brief Page 3 of 11 Foreign Exchange Market Lebanese Forex Market 19/02/ /02/2016 % Change Euro / Dollar % Sterling / Dollar % Dollar / Swiss Franc % Dollar / Yen % NEER Index** % *Close of GMT 09:00+2 **Nominal Effective Exchange Rate; Base Year Jan 2006=100 **The unadjusted weighted average value of a country s currency relative to all major currencies being traded within a pool of currencies. The NEER represents the approximate relative price a consumer will pay for an imported good. Nominal Effective Exchange Rate (NEER) Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Demand for the Dollar in the Lebanese Forex Market remained unchanged over the past week as the value of the Lebanese Pound steadied at $/LP 1,513-1,514 with a midprice of $/LP 1, Foreign assets (excluding gold) of the Central Bank fell by a monthly 1.91% to $37.09B at the end of December The dollarization ratio of private sector deposits fell from 65.71% in 2014 to 64.88% in By Friday 19 th of February, 2016, 12:30 am Beirut time, the euro depreciated against the dollar-pegged LP as the exchange rate dropped by 1.76%, over the last week, from /LP 1, to /LP 1, As for the Nominal effective Exchange Rate (NEER), it appreciated by a weekly 0.47% to points. The Euro dropped by a weekly 1.76% against the dollar as positive data released in the U.S over the week, including consumer report and Industrial Production Data in addition to the FED s minutes of meeting, has reinforced the dollar. Also, the euro is downside facing pressure on hint of further interest rates cutting in the Eurozone. After a positive performance for the dollar over the week, the gold prices declined from last week s $1,240.36/ounce to $1,227.36/ounce this week. Money & Treasury Bills Markets Money Market Rates 18/02/ /02/2016 Change bps Overnight Interbank 3.00% 2.75% 0 BDL 45-dayCD 3.57% 3.57% 0 BDL 60-day CD 3.85% 3.85% 0 Treasury Yields 18/02/ /02/2016 Change bps 3-M TB yield 4.39% 4.39% 0 6-M TB yield 4.87% 4.87% 0 12-M TB yield 5.08% 5.08% 0 24-M TB coupon 5.84% 5.84% 0 36-M TB coupon 6.50% 6.50% 0 60-M TB coupon 6.74% 6.74% 0 During the week ending on February 4th, broad Money M3 increased by LP 220B ($145.93M) to reach LP 185,849B ($123.28B). M3 registered a 4.83% yearly growth and a 0.40% year-to-date downtick. Similarly, M1 progressed by LP 83B ($55.06M) over the mentioned period, due to the increase in money in circulation by LP 288B ($191.04M) and LP 205B ($135.99M) drop in demand deposits. Total deposits (excluding demand deposits) increased by LP B ($91.12M) during the week, given the $17M contraction in deposits denominated in foreign currencies and the LP 163B increase in term and saving deposits. Over the above mentioned period, the broad money dollarization rate ticked down from 57.75% on the 28th of January to 57.67% on the 4th of February. According to the Central Bank, the overnight interbank rate steadied at 3.00% by the end of October In the TBs auction held on the February 11, 2016, the Ministry of Finance (MoF) raised LP B ($131.31M), through the issuance of bills and notes maturing in 3M and 2Y. The highest demand was achieved on the 2Y notes, which grasped a 51.85% share of total subscriptions, while the 3M bills captured the remaining 48.15%. The discount rate on the 3M bills stood at 4.44%, while the coupon rate on the 2Y notes registered 5.84%. New subscriptions exceeded existing maturities by LP B ($112.88M).

6 The Lebanon Brief Page 4 of 11 Eurobond Market Eurobonds Index and Yield 18/02/ /02/2016 Change Year to Date BLOM Bond Index (BBI)* % -0.72% Weighted Yield** 6.27% 6.41% Weighted Spread*** *Base Year 2000 = 100; includes US$ sovereign bonds traded on the OTC market ** The change is in basis points ***Against US Treasuries (in basis points) Lebanese Government Eurobonds 18/02/2016 Maturity - Coupon Price* 11/02/2016 Price* Weekly Change% 18/02/2016 Yield 11/02/2016 Yield Weekly Change bps 2017, Mar % % 4.94% 5.00% , Oct % % 5.23% 5.23% , Jun % % 5.26% 5.43% , Nov % % 5.35% 5.44% , Apr % % 5.85% 6.06% , Mar % % 6.20% 6.37% , Apr % % 6.21% 6.38% , Apr % % 6.40% 6.51% , Oct % % 6.47% 6.62% , Jan % % 6.52% 6.68% , Dec % % 6.69% 6.79% , Feb % % 6.72% 6.80% , Nov % % 6.90% 7.05% , Nov % % 6.94% 7.11% , Feb % % 7.02% 7.18% -16 Mid Prices ; BLOMINVEST bank Weighted Effective Yield of Eurobonds 7.00% 6.50% 6.00% 5.50% 5.00% Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Higher demand was registered for Lebanese Eurobonds over the past week as shown by the 0.69% weekly increase in the BLOM Bond Index (BBI) to points. The Lebanese gauge was outpaced by the JP Morgan Emerging Markets Bond Index which rose by a weekly 1.61% to points. The yields on the 5 Year and 10 Year Lebanese Eurobonds fell from last week s 6.50% and 6.93% to 6.36% and 6.82%, respectively. In contrast, 5 Year and 10 Year yields in the US rose from 1.11% and 1.63% to 1.21% and 1.75%, respectively. Accordingly, the spread between the yields on the 5Y and 10Y Lebanese Eurobonds and their US comparable narrowed from 539 bps and 530 bps to 515 bps and 507 bps, respectively. 5Y CDS 18/02/ /02/2016 Mid-Price Mid-Price Lebanon KSA Dubai Brazil Turkey

7 The Lebanon Brief Page 5 of 11 ECONOMIC NEWS PoB Revenues in January of Each Year 18,495,919 18,368,119 16,743,102 16,007,395 13,802,145 Port of Beirut s Revenues Up to $18.37M in January 2016 Activity at the Port of Beirut (PoB) remained buoyant in the first month of 2016 as the port revenues recorded a double-digit yearly increase of 14.75% to $18.37M. Total container activity including transshipment (TEU+TS) grew by an annual 9.70% to 91,898 twenty-foot equivalent unit (TEU) in January. In details, container activity excluding transshipment increased by 19.90% y-o-y to 65,782 TEU, while transshipment activity alone declined by an annual 9.66% to 26,116 TEU in the first month of MSC and CMA CGM, the two major shipping/logistic firms operating at the port, witnessed yearly falls in transshipment activity of 8.94% and 14.65% to 14,150 TEU and 10,780 TEU, respectively Source: Port of Beirut Details of the port s activity for the month of January 2016 compared to the same month in 2015 were as follows: The number of ships that docked at the PoB in January increased from 133 in 2015 to 153 in 2016 The total volume of imported and exported merchandise rose from thousand tons in 2015 to thousand tons in The number of imported cars also registered an upturn from 6,583 cars in 2015 to 9,662 cars in Public Debt Rose by a Yearly 5.63% to $70.3B in 2015 Share of Holders of Local Currency Debt Dec-14 Dec-15 Commercial Banks 51% 45.80% Central Bank 32.10% 37.30% Non-Banking Sector 16.90% 16.90% Source: ABL \ According to the Association of Lebanese Banks (ABL), gross public debt grew to $70.3B by December 2015, indicating a 5.63% increase on a year-on-year (y-o-y) basis. Public debt denominated in Lebanese pounds, accounting for 61.5% of overall debt, registered a 5.58% yearly increase to reach $43.25B by December As for debt in foreign currency, it increased by 5.72% on a y-o-y basis to reach $27.06B in December Net public debt, which excludes public sector deposits at Lebanese commercial banks and at the Central Bank, grew by 7.39% y-o-y to $61.54B by December. In December alone, Lebanese commercial banks remained the top holders of Lebanon s public debt denominated in local currency with a share of 45.8%, followed by a stake of 37.3% for the Central

8 The Lebanon Brief Page 6 of 11 Bank of Lebanon and a 16.9% share for the non-banking sector. The Value of Kafalat Guarantees Rose to $7.93M in January 2016 Value of Kafalat Guarantees in January, In $ 10,656,594 10,345,351 7,925,970 According to Kafalat, the number and value of issued guarantees rose from 40 and $5.13M in January 2015 to 54 and $7.93M in January Accordingly and over the same period, the average loan value per project increased from $128,373 to $146,777. The geographical allocation in January 2016 showed that the biggest beneficiary of Kafalat guarantees is the region of Mount Lebanon with a share of 40.74%, followed by a 29.63% share for the Bekaa, 16.67% for the North and 7.41% for the South. 6,755,941 5,134,925 Compared to the first month of 2015, 3 additional guarantees were granted in Mount Lebanon, 11 in the Bekaa and 7 in the North, bringing the total number of guarantees to 22, 16 and 9, respectively. However, the number of Kafalat guarantees granted in the South dropped from 8 to 4 over the same period. In January 2016, the biggest number of Kafalat guarantees was granted to the industrial sector as they accounted for 38.89% of total guarantees followed closely by a 37.04% share for the sector of agriculture, a 16.67% share for the tourism sector and a 5.56% share for the sector of advanced technology Source: Kafalat Compared to January 2015, 8 additional Kafalat guarantees were disbursed for the industrial sector bringing the total number of industrial Kafalat guarantees to 21 in the first month of The number of Kafalat guarantees for the agricultural sector, the tourism sector and the advanced technology sector also increased from 19, 3 and 2 in 2015 to 20,9 and 3 in 2016, respectively.

9 The Lebanon Brief Page 7 of 11 Contribution of EDL in the Total Oil Bill by September 4.20% 3.50% Slump in Oil Prices Alleviates Transfers to EDL to $888.37M by September 2015 According to the Ministry of Finance, transfers to EDL reached $888.37M during the first 9 months of 2015, 40% lower than the $1.49B transferred over the same period in This decline mainly resulted from the 41% yearly decrease in payments to fuel and oil gas suppliers KPC and Sonatrach, which reached $871.02M by September The lower oil bill resulted from two main reasons: 2.90% 2.10% lower quantity of imported fuel oil that dropped by a yearly 2.67% the slump in the average oil price per barrel from $ over the January-September 2014 period to $55.05 over the January-September 2015 period. Over the same period, EDL s contribution in the total oil bill rose from 2.1% to 3.5%; However, in nominal terms EDL s contribution remained almost unchanged at $31.84M Source: Ministry of Finance

10 The Lebanon Brief Page 8 of 11 CORPORATE DEVELOPMENTS Baalbaki Chemical Industries (BCI) Acquires Italian House Polysystem Market Figures BCI is one of the only 40 polyurethane companies in the world BCI provides for 95% of the Middle East and Africa polyester market Baalbaki Chemical Industries (BCI) Holdings is the leading independent producer of polyurethane systems, polyester polyols and specialty adhesives in the Middle East and Africa regions. The holding owns manufacturing facilities in UAE, Egypt and Italy and technical service centers in Turkey, Algeria, Nigeria, and Jordan in addition to offices in Beirut and Shanghai. Aiming to penetrate the European market, BCI stated that it has acquired 70% of the biggest player on the Italian market: Italian System House Polysystem. According to an interview with the Group s CEO with L Orient Le Jour, Hassane Baalbaki announced that a new Research and Development center will be implemented in Italy in the coming 6 months. During the same interview, Baalbaki revealed that BCI saw its profits increasing by 28% during 2015 following a 30% rise in the previous year. This mainly resulted from the expansion of the company in Pakistan and Turkey. Italian System House Polysystem, part of Dollmar Group, is a polyurethane system company focused on rigid polyurethane systems. The manufacturing facilities are built on a 7,000 sqm industrial property in Vedano Olona, Italy with currently installed capacities to produce more than 20,000 MT of Polyurethane systems. The Middle East and Africa polyester market generates an annual volume of 120,000 tons and is worth a little more than $200M BCI could not disclose how much they paid for the investment as this is covered by a secrecy agreement. However, what they disclose is that BCI Holding SA has earmarked 30 Million Euros of capital for BCI-Europe and its European investment program. Source: BCI, L orient le Jour

11 The Lebanon Brief Page 9 of 11 FOCUS IN BRIEF Lebanese Gas Stations: Tied with Regulation The collapse in global crude oil prices since June 2014 had a significant impact on economies, governments and business. Lebanon was no exception to this rule. One of the local markets to bear the brunt of these changes was the fuel oil industry, which has witnessed several changes in its market dynamics due to not only the economic factors dictating their businesses, but local social factors as well. The fuel oil industry in Lebanon is a saturated market, with 13 licensed oil importers and distributors. Lebanon s distribution network consists of around 2,200 registered service stations, with a further 1,000 rumored to be operating without the required permits. This market is dominated by Total, Medco-Phoenicia, and Hypco, which hold a combined market share exceeding 50%. Other remaining significant oil importers control roughly equal shares to complete the market. In terms of the number of service stations, Medco-Phoenicia ranks first, with 320 stations, followed by Coral with more than 200 stations. United comes third with 189 gas stations, However, this large number has not translated in to a higher market share for United. This can probably be explained by United not operating in more prime locations, such as on main roads and highways. There exist some barriers to enter the fuel oil market in Lebanon. The potential entrant should comply with the rules set by the Ministry of Energy and Water, obtain a permit to open a gas station, acquire a license to import, attain a terminal on the port, purchase a suitable land, and have the necessary infrastructure for oil importing. However, in the past couple of years, the government has not been authorizing entry to this market. This is due to the presidential vacuum, and the fact that the market is highly saturated with around one gas station every 3 km 1. One source claimed that Lebanon has 7 times more stations than needed. Demand for fuel oil in Lebanon is considered inelastic to price fluctuations as it is deemed to be a necessity. Nonetheless, this demand is seasonal, considering the increased demand for fuel during summer and holidays. Average consumption currently stands at 5-6M liters per day. This number has been witnessing an increasing trend over the past 2 years, due to the increase in refugees. However, it has partially faced headwinds due the decrease in tourist activity, where one oil importer claimed it faced a 20% lower demand during the past 2 years. On the international trade front, imports of mineral products to Lebanon grew by 5.71% year-on-year to 5.99M tons in 2015, however at a 30.07% decline in value to $3.32M. This is caused by the 49.71% plunge in the price of Brent Crude oil. Lebanon imported 21.57% mineral products from Greece, 19.31% from Russia, 10.76% from France, 10.72% from Italy, and 9.26% from Kuwait. Fuel oil is subject to almost 7,000L.L/tank in custom duty and VAT payments. The selling price of fuel in Lebanon is set by the government. The ministry of energy and water changes the price of fuel every Wednesday. The price is calculated using the four-week average of international prices based on Platts. (Platts is a provider of energy and metals information and a source of benchmark price assessments in the physical energy markets.) 1 As mentioned in the article What a Gas in Executive Magazine

12 The Lebanon Brief Page 10 of 11 Price Structure (in L.L./tank) as of 8 th of February 2016 Unleaded 98 Octane Unleaded 95 Octane Gas Oil Diesel Oil Cost 10,580 10,020 8,040 8,240 Customs 4,950 5, Profits of Distributing Company Transportation Costs Profits of Gas Station 1,900 1, Total Cost Excluding VAT 18,090 17,640 9,400 9,600 VAT 1,809 1,764 Exempted Exempted Selling Price 19,900 19,400 9,400 9,600 Source: MOEW To protect themselves against global price fluctuations, oil importers adopt hedging strategies. For instance, one importer stated that it synchronizes its imports based on a 4-week moving average. One source claimed that he does not use any hedging strategy, as no one can predict for sure the movement of international prices. Globally, oil importers typically hedge against change in prices by locking in some of their future imports at favorable prices through swap transactions sold by banks, or by buying options as insurance against change in prices. Moreover, gas stations also defend their profits from a change in the regulated selling price. When they expect the government will increase prices, they store more fuel to sell it when the rule is exercised. Similarly, the stations decrease their fuel storage when anticipating a price decline. Aside from their major fuel-services, many gas stations follow international trends by including small shops, restaurants and ATMs. These non-fuel services constitute a small share of around 6% of the total revenues of gas stations. Due to their ease of access, convenience and being open 24/7, these services are being provided as marketing tools to attract customers. Many other marketing strategies are being adopted by gas stations in Lebanon. Some gas stations offer their clients loyalty cards, providing services such as car washes and oil changes free of charge. Others use innovative and environmentallyfriendly techniques in providing their services, such as laser carwash and gas oil that reduces CO 2 emission. In conclusion, the fuel oil market is over-saturated, with the price fixed by the government and profit margins being relatively small. These small profits do not motivate gas stations to invest in their infrastructure and expand their services. Also, even if global oil prices were to return to previous highs, an event that is becoming increasingly unlikely, gas stations would not be realizing improved profit margins. The expensiveness of prime locations and the increasing lack of availability of such locations would mean that future gas stations would find it difficult to imitate the already low margins being realized. Therefore, most gas stations agree that the industry they work in is not attractive.

13 The Lebanon Brief Page 11 of 11 Research Department: Sobhi Chatila Lana Saadeh Riwa Daou Marwan Mikhael Your Investment Reference