BANQUE D'AFFAIRES DU LIBAN ET D'OUTRE-MER SAL

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1 Monday 4 October Saturday 9 October, 1999 Issue N o 167 BANQUE D'AFFAIRES DU LIBAN ET D'OUTRE-MER SAL Economic Research Department The Lebanon Brief can be accessed via Internet at the following web address:

2 EQUITY MARKET Financial Markets Stock Market 8/10/99 1/10/99 % BLOM Stock Index (0.68%) Total Volume Traded 447,882 1,292,778 (65.36%) Total Value Traded $1,009,517 $8,745,488 (88.46%) 22 January 1996 = /01/99 18/01/99 01/02/99 15/02/99 01/03/99 15/03/99 29/03/99 12/04/99 BLOM STOCK INDEX 1999 Year-to-Date 26/04/99 10/05/99 24/05/99 07/06/99 21/06/99 05/07/99 19/07/ Lo The local equity market reached new depths, dragged down by Byblos C joining Solidere A on an all-time low. Volume on the Beirut bourse was again distorted somewhat by particularly large trades in one or two stocks, with the spotlight falling this time on Ciments Libanais and RYMCO albeit on a much more modest scale than that recorded last week by Bank of Beirut with its 1 million plus trade. News on the government s proposed 2000 budget left no imprint on a very subdued market, although suggestions such as a possible turnover tax are hardly likely to go down well with a corporate sector already struggling with a depressed economy. Indeed, government thinking on tackling the budget deficit perhaps requires greater clarity and transparency if the markets are to be fully persuaded of any course of action to be taken. Lebanese GDRs fell across the board, not helped by either the economic situation nor by the lack of progress on the Syrian-Israeli track in peace talks. Banking Sector Mkt 8/10/99 1/10/99 % BLOM (GDR) LSE $ $ (1.07%) Audi (C) BSE $ $ % Audi (GDR) LSE $ $ (1.93%) Byblos (A) OTC $1.750 $ % Byblos (B) OTC $2.000 $ % Byblos (C) BSE $2.125 $2.188 (2.88%) Bank of Beirut (C) BSE $7.563 $ % BLC (C) BSE $ $ % BLC (GDR) Lux $ $ (0.41%) Fransabank (A) OTC $6.125 $ % Fransabank (B) OTC $6.690 $ % BEMO (C) BSE $3.250 $ % Byblos C, one of the bourse s biggest stocks, retreated to a new low of $2.125, with some investors amongst its relatively wide shareholder base perhaps seeing little prospect of a turnaround in the near future and preferring to seek alternative opportunities. Bank of Beirut was unchanged despite announcing quite respectable 9-month results on Friday, although holding one s ground is an achievement in itself these days. Audi s C share remained motionless as its GDR dropped 1.9% to go below $17 for the first time, ending on $ Hit to a lesser extent were BLOM s and BLC s GDRs, falling 1.1% and 0.4% to $25.40 and $12.00 respectively. 02/08/99 16/08/99 30/08/99 13/09/99 27/09/99 Banque d Affaires du Liban et d Outre-Mer s.a.l. 1

3 EQUITY MARKET cont d Real Estate Mkt 8/10/99 1/10/99 % Solidere (A) BSE $6.875 $ % Solidere (B) BSE $7.125 $7.250 (1.72%) Solidere (GDR) LSE $7.325 $7.900 (7.28%) Solidere B slipped 1.7% to $7.125 as the A share maintained its level on $ Demand for the former is quite strong at under $7.125, while that on the latter is closely matched with supply at present. The company s GDR continued its downward path, cutting its premium to the underlying A share to $0.45 from $1.025 last week. Manufacturing Sector Mkt 8/10/99 1/10/99 % Ciments Libanais BSE $0.594 $ % Ciments Blancs (B) BSE $1.750 $ % Ciments Blancs (N) BSE $1.875 $ % Eternit* BSE Uniceramic (A) BSE $1.625 $ % Uniceramic (C) BSE $1.906 $ % * Trade on Eternit was suspended on January 21 st, 1999 until further notice. Ciments Libanais saw its volume more than double to 214,722 with absolutely no effect on its price, as it released first-half results showing a considerable reduction in losses to $182,635 from $6.45m for the same period in Both Ciments Blancs stocks traded for a combined volume of 36,802, but neither witnessed any price change. Mkt 8/10/99 1/10/99 % Funds Lebanon Holdings BSE $6.000 $ % Retail Sector RYMCO BSE $3.000 $ % Bou Khalil BSE $1.500 $ % ABC OTC $ $ % Tourism Sector Casino Du Liban OTC $ $ % SGHL OTC $4.375 $ % RYMCO was the subject of two block trades totalling 109,278 with no activity recorded on-floor. Financial Markets Banque d Affaires du Liban et d Outre-Mer s.a.l. 2

4 FOREIGN EXCHANGE MARKET Financial Markets Foreign Exchange Market 8/10/99 1/10/99 % LP / Dollar 1, , % Dollar / Euro (0.79%) DM / Dollar % Yen / Dollar % French Franc / Dollar % Swiss Franc / Dollar % Dollar / Sterling % Demand for Lebanese pounds continued to be the main feature of the local foreign exchange market, but at a reduced volume as LP interest rates stabilise. The market s very quiet character at present is unsurprising given the dearth of positive news, with peace talks stalled and the economy still acting like a patient in intensive care. Interbank trading remained confined to LP1,501-1, band. MONEY MARKET Money Market Rates 8/10/99 1/10/99 b.p. Interbank Average 7.21% 7.08% 13 BDL 45-day CD 9.50% 9.50% 0 BDL 60-day CD 10.25% 10.25% 0 Treasury Yields* 21/10/9 9 14/10/9 9 b.p. 3-M TB yield 11.18% 11.18% 0 6-M TB yield 12.12% 12.14% M TB yield 13.43% 13.45% M TB yield 14.14% 14.16% -2 day-to-day rate * TB auctions are held two weeks in advance. Nominal TB purchases fell 14.26% on September 30 th to LP193.2bn ($128.2m), while the amount of maturing TBs rose 4.7% to LP145.4bn ($96.5m). There was no auction for September 30 th in which banks could participate, again obliging them to purchase TBs in the secondary market where yields differed only slightly from those determined at auction on September 16 th. The Central Bank continued to sell TBs two weeks in advance for the second week in a row. Purchases of short-term Treasuries were virtually non-existent on September 30 th. Interest was mainly focused on the 24-M TB, which captured a weight of 89.3% compared to 62.7% in the previous week. On the other hand, the 12-M TB managed to attract only 7.93% of total purchases, down from 34.6%. TB yields appear to be approaching some kind of equilibrium, as rates for the October 14 th auction dropped by a modest 2 b.p. from the previous week, while the 3-M TB yield remained unchanged. Finance Minister Georges Corm announced that the government is considering issuing a 3 or 5 year LP bond before the end of the year. It is thought that a 3-year bond would yield around 15%, easing pressure felt by banks to reduce LP deposit rates which could impact negatively on the local currency in the foreign exchange market. The Central Bank sold LP117bn ($77.6m) worth of 60-day CDs on October 8 th. Banque d Affaires du Liban et d Outre-Mer s.a.l. 3

5 EUROBOND MARKET Reuters Lebanese Government Bond Index 8/10/99 1/10/99 % Reuters Bond Index % Lebanese Government Eurobonds Maturity-Coupon 8/10/99 Weekly Yield % % % 7.04% % % 7.71% % (DM) % 6.48% % (0.25%) 8.77% % % 9.19% % (Euro) % 7.51% % % 9.25% % (Euro)* (0.50%) 8.87% % % 9.17% %* (0.87%) 10.25% All eurobonds are in USD unless otherwise indicated. * Issued on September 23 rd, The new 06 euro and 09 USD sovereign bonds were being offered at par by the end of this week, as investors engaged in profit-taking ahead of the October 6 th payment date for the bonds. Particularly hit was the Lebanon 09 issue that fell 0.87% from last week. Jobs data for September released by the Labor Department failed to give the market its much needed direction, with average hourly earnings jumping 0.5%, almost double market expectations, while nonfarm payrolls fell by 8,000, where predictions were for a gain of over 200,000. The latter figure was heavily distorted by the effects of Hurricane Floyd, without which there would have been a gain of 50,000. The much anticipated outcome of the FOMC meeting on Tuesday, leaving interest rates on hold, weighed heavily on the market when the Fed reported a bias towards a possible firming of policy, though committee members emphasised that the tightening stance did not signify commitment to near-term action. Moreover, stronger global growth, potential European rate increases and higher gold and oil prices continue to haunt Treasuries, though this is offset somewhat by reduced issuance of both corporate and government bonds and persisting Y2K concerns. Issuer Lebanese Corporate Eurobonds Maturity- Coupon 8/10/99 Weekly % Yield Mediterranee % % 2.33% BoB % % 7.23% Audi % % 7.77% BoB % (0.25%) 8.12% Mediterranee % % 8.35% Libano-Francaise % % 8.01% Byblos Bank % % 8.36% Credit Libanais % % 8.24% Mediterranee % % 8.65% Fransabank % % 8.38% Méditerranée % % 8.62% BLOM % % 8.56% Ciments Libanais % % 9.94% Audi % % 8.33% Financial Markets Banque d Affaires du Liban et d Outre-Mer s.a.l. 4

6 Customs Duties Down 22.6% in September Economic Statistics Revenue from customs duties, the government s major source of income, decreased noticeably by 22.63% in September from August, to $107.46m, while on a year-to-year basis it dropped by 2.7% from $110.45m in September For the first nine months of 1999, revenue from customs duties amounted to $1,048.1m, compared to $992.5m in the same period of Million $ Customs Duties $ $ Sept '98 Aug '99 Sept '99 Banque d Affaires du Liban et d Outre-Mer s.a.l. 5

7 Cabinet Discusses 2000 Budget Proposal The Lebanon Brief Ministers have begun discussing the nearly completed 2000 budget draft which forecasts a 36% deficit between expenditures of LP8,600bn ($5.7bn) and revenues of LP5,500bn ($3.6bn). Finance Minister Georges Corm presented the cabinet with a number of options aimed at increasing revenues including the introduction of a 0.75% turnover tax as a temporary measure before a value-added tax is fully implemented in According to Mr. Corm, the turnover tax could bring in $120m, in return for which he is offering to cut customs charges by 1% on imported products that are taxed at 10% or more. In addition, he is proposing an additional LP1,000 tax on every 20 litres of gasoline to raise an extra $53m a year. However, after discussing Mr. Corm s proposals, the cabinet decided against the LP1,000 rise on gasoline prices. As to the turnover tax, it was discussed during a meeting between Finance Minister and economic groups which oppose such a tax, proposing instead a lump sum fee to be paid by every company depending on its size and legal form. The issue, however, will be finalised during another cabinet meeting that will take place on Saturday afternoon (October 9 th ). Government Declares Phoenicia s Duty-Free Concession Invalid The Lebanese government pronounced the $6.5m bid made by Phoenicia Trading Company, the company managing the duty-free alcohol and tobacco concession at Beirut airport for the past 10 years, to operate the shop for one year until next May invalid. Instead, the concession has been given to the company of Mohammed Abdel-Bassat, the second highest bidder at some $250,000 less than Phoenicia s offer. Apparently, the government s accounting department has found a number of discrepancies with the concession. Upon the expiration of the one year contract, Phoenicia-Aer Rianta Company, a joint venture between Phoenicia, the Irish Aer Rianta and a number of smaller shareholders, will take over the operation of the expanded duty-free zone under a 15-year contract worth $38m. The contract, which was signed with the previous government, was declared to be illegal last June, however PAC officials say that they have received government assurances that the agreement will be honoured. Weekly Developments Banque d Affaires du Liban et d Outre-Mer s.a.l. 6

8 BoB Posts Higher 9-Month Profits Corporate News Bank of Beirut S.A.L. (BoB) posted net profits for the first nine months of 1999 of LP20.81bn ($13.8m), up from LP14.7bn ($9.74m) for the same period in 1998, prior to the $70m acquisition of Transorient Bank. Income derived from treasury bill holdings helped support profits, rising to LP71.65bn ($47.53m) from LP32.36bn ($21.43m) in the year to September BoB s assets stood at $1.67bn at the end of September, against a premerger $899m a year earlier. SCL Announces First-Half Profit Lebanon's largest industrial company, Societe des Ciments Libanais S.A.L. (SCL), announced a net loss of $182,635 for the first-half of 1999, compared to a loss of $6.45m for the same period in The company had sales of $34.76m, up $1.49m from the first-half of 1998, however, the marked decrease in losses mainly stemmed from a $6m reduction in the cost of goods sold. Total assets amounted to $388.6m by June 30, 1999, compared to $400m for the same period in 1998, while SCL s medium and long term debt level fell 3.3% to $106.8m. MEA Reschedules GA In a meeting held on October 7 th, Middle East Airlines (MEA) Chairman Mohamed Hout announced that the national airline had cut its net losses for 1998 by 51.7% from the previous year, to $42.3m. Though attendants were expecting to discuss and approve the airline s financial statements for , they were instead presented with the management s plan aiming to transform the airline into a profit-generating entity, while the GA was rescheduled for October 23 rd. The plan read as follows: - Reducing the number of routes to the most profitable ones. - Enhancing the strategic alliance with Air France, using Beirut and Paris as the main transit stops for destinations such as the Gulf and the Americas. - Improving the standard of service offered (e.g. plane punctuality, quality of food and first-class services) - Imposing a strict hiring process where all potential employees are selected on the basis of their qualifications. - Upgrading the airline s information system. - Reviewing and renegotiating a number of contracts and purchase agreements. - Establishing new smaller companies to service the mother company, using the existing surplus of employees. - Improving the social benefits of its ground workers. - Implementing an early retirement programme based on acceptable terms. At the same time, press sources reported that MEA might be considering a U.S. strategic partner that might take a stake in the Lebanese airline. Banque d Affaires du Liban et d Outre-Mer s.a.l. 7

9 SGLEB Buys Share in MEIB Societe-Generale Libano-Europeenne de Banque S.A.L. (SGLEB) confirmed its purchase of a 35% stake in the Jordanian Middle East Investment Bank (MEIB) with a clause allowing it to increase its holding to 51% later on. SGLEB President Maurice Sehnaoui announced that the purchase would be made at net equity value, estimated at less than $10m. The deal, which makes SGLEB the largest shareholder in the Jordanian Bank, is currently awaiting final approval by both Jordanian and Lebanese authorities. SGLEB, whose ownership is split almost equally between France s Societe Generale and the Sehnaoui Group, generated a net profit of $19.96m in On the other hand, MEIB has 20 branches and about 1-2% of the market in Jordan and is owned by several Jordanian and Gulf based investment and commercial groups. The bank s capital stands at about $14m, which is expected to reach $28m through a capital injection and convertible bonds issue. Central Bank approves BCP and Intercontinental Merger The Central Bank has given its approval to the merger of BCP Oriel (formerly Banque du Credit Populaire) and Intercontinental Bank S.A.L, thus completing the acquisition that was announced in March The merger, part of the consolidation process in Lebanon s banking sector, will create a bank with a capital of $19m, total consolidated deposits of $100m and a branch network of 9. Moreover, the Central Bank has agreed to give Intercontinental an eight-year $14.6m soft loan in order to help it purchase BCP Oriel. BCP was revived in a $35.5m restructuring last year and became part of an international group based in Oman and registered in Luxembourg as Fincorp. On the other hand, Swiss banking group Companie Bancaire de Geneve has a stake in Intercontinental Bank. Fidelity Merges with Iskan Fidelity insurance is now in the process of merging its operations with small insurance company Iskan, even though the former had acquired the latter some two years ago for about $6-7m. The new entity will be known as Fidelity-Iskan for one year and then just Fidelity later on, and will have an increased capital and client base and wider territorial coverage. Fidelity had premiums of about $7.3m in 1998, while Iskan had premiums of about $2m for the same year. Finance Bank S.A.L Announces Extraordinary GA Finance Bank S.A.L., 99%-owned by Intra Investment S.A.L., has announced that it will hold an Extraordinary GA on November 1999 at its headquarters in Beirut. The assembly will discuss among other things the following: Viability of increasing the bank s capital Introduction of basic internal structural reform BLOM Opens New Branch Corporate News Banque du Liban et d Outre Mer S.A.L. (BLOM) is opening a new branch in Aramoun in the Centre Zeinab, thus extending its Lebanese network to a total of 37 branches. The branch will commence operations on October 11, Banque d Affaires du Liban et d Outre-Mer s.a.l. 8

10 BANQUE D'AFFAIRES DU LIBAN ET D'OUTRE-MER SAL Rachid Karameh Street Verdun P.O.Box: , Beirut BLOM Bldg. - 2nd Floor Tel: , Fax: balom@balom.com.lb This report is printed for the purpose of informing 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. Banque d Affaires du Liban et d Outre-Mer s.a.l. 9

BLOMINVEST BANK S.A.L.

BLOMINVEST BANK S.A.L. Economic Research Department The Lebanon Brief can be accessed via Internet at the following web address: http://www.blom.com.lb EQUITY MARKET Financial Markets Stock Market 25/1/02