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

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1 Monday 18 October Saturday 23 October, 1999 Issue N o 169 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 22/10/99 15/10/99 % BLOM Stock Index (0.81%) Total Volume Traded 127, ,330 (48.78%) Total Value Traded $481,237 $683,495 (29.59%) 22 January 1996 = /01/99 18/01/99 BLOM STOCK INDEX 1999 Year-to-Date 1999 Lo /02/99 15/02/99 01/03/99 15/03/99 29/03/99 12/04/99 26/04/99 10/05/99 24/05/99 07/06/99 21/06/99 05/07/99 19/07/99 02/08/99 16/08/99 30/08/99 13/09/99 27/09/99 11/10/99 The Beirut bourse reminded everybody that there s no real bottom until you hit zero, so there s still plenty of room for further falls, as the market capitalisation of the bourse dropped to a new low this week of $1.73bn. The dire state of the equity market was highlighted by the relatively thin volume level of 127,146. The transfusion of new blood in the form of a new bourse committee is hardly likely to make any difference to the market s fortunes when the arteries are blocked. GDRs were no more in favour than their locally listed counterparts, despite BLOM proving that it is possible to thrive in adverse times. Banking Sector Mkt 22/10/99 15/10/99 % BLOM (GDR) LSE $ $ (2.31%) Audi (C) BSE $ $ % Audi (GDR) LSE $ $ (2.42%) Byblos (A) OTC $1.750 $ % Byblos (B) OTC $2.000 $ % Byblos (C) BSE $2.125 $2.250 (5.56%) Bank of Beirut (C) BSE $7.563 $ % BLC (C) BSE $ $ % BLC (GDR) Lux $ $ (0.21%) Fransabank (A) OTC $6.125 $ % Fransabank (B) OTC $6.690 $ % BEMO (C) BSE $3.125 $3.250 (3.85%) BLOM posted a strong 19.6% year-on-year increase in its first nine months profits, arresting a fall in its GDR, which had fallen 2.3% from the previous week s close to stabilise at $ Audi, in contrast, saw its profits for the year to September fall 6.3%, reflecting its greater vulnerability to prevailing economic conditions. The clouds over Audi darkened as only 150 shares were traded in its C shares, while the bank s GDRs continued to fall after the results release to settle at $16.15, down 2.4% on the week. Although Byblos C witnessed the largest turnover on the bourse, of 60,812, its price still declined by 5.6% to $2.125 under heavy supply pressure that reached 215,470. BEMO was also singing the blues when it fell 3.8% to $3.125 on a trade of 10,000 shares. Banque d Affaires du Liban et d Outre-Mer s.a.l. 1

3 EQUITY MARKET cont d Real Estate Mkt 22/10/99 15/10/99 % Solidere (A) BSE $6.875 $ % Solidere (B) BSE $7.000 $7.125 (1.75%) Solidere (GDR) LSE $6.150 $6.775 (9.23%) Solidere B fell 1.8% to $7 as the A share remained steady. The strong demand enjoyed by the former continued but now at below $7, while the latter was again in marked supply, topping 120,000 at one point. The company s GDR tumbled further, by 9.2% to $6.15 as foreign investors desert the instrument and emerging markets in general ahead of the end-ofyear Y2K scenario. Of course, stories circulating on the increased bureaucratic processing of development plans within the Beirut Central District don t help matters. Manufacturing Sector Mkt 22/10/99 15/10/99 % Ciments Libanais BSE $0.594 $ % Ciments Blancs (B) BSE $1.938 $ % 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 Blancs B moved for the first time since June, going up 3.3% to $ The government decided this week to ban cement imports for 5 years in a bid to support local producers suffering from cheaper foreign competition amongst other things. Mkt 22/10/99 15/10/99 % Funds Lebanon Holdings BSE $6.000 $ % Retail Sector RYMCO BSE $3.000 $ % Bou Khalil BSE $1.750 $ % ABC OTC $ $ % Tourism Sector Casino Du Liban OTC $ $ % SGHL OTC $4.375 $ % Bou Khalil rose 16.7% to $1.75 in the week that it opened a major new store in Tripoli which should significantly add to its revenues. Financial Markets Banque d Affaires du Liban et d Outre-Mer s.a.l. 2

4 FOREIGN EXCHANGE MARKET Financial Markets Foreign Exchange Market 22/10/99 15/10/99 % LP / Dollar 1, % Dollar / Euro % DM / Dollar % Yen / Dollar % French Franc / Dollar % Swiss Franc / Dollar % Dollar / Sterling % Tranquility continued to reign over the local foreign exchange market, with the little activity that there was favouring the Lebanese pound. The switching of dollars to pounds continued in its mild fashion of recent weeks, with much of the funds directed into treasury bills, the rates on which have now steadied. Interbank trading remained anchored between LP1,501-1, MONEY MARKET Money Market Rates 22/10/99 15/10/99 b.p. Interbank Average 7.25% 10.00% -275 BDL 45-day CD 9.50% 9.50% 0 BDL 60-day CD 10.25% 10.25% 0 Treasury Yields* 4/11/99 28/10/99 b.p. 3-M TB yield 11.18% 11.18% 0 6-M TB yield 12.12% 12.12% 0 12-M TB yield 13.43% 13.43% 0 24-M TB yield 14.14% 14.14% 0 day-to-day rate TB auctions are held two weeks in advance. Nominal TB subscriptions rose only slightly on October 14 th by 8.04% to LP479.79bn ($318.27m), while the amount of maturing TBs rose by 24.35% to LP293.59bn ($194.75m), as limits continued to be placed on competitive bids on the primary market. There was no discernible variation in the distribution of subscriptions in the different maturities from the previous week, with the 24-M TB continuing to hold around 50% of total purchases followed by the 12-M TB which held 22%. Subscriptions in the 6-M and 3- M TBs registered respective weights of 13.97% and 9.58%. According to the head of financial operations at the Central Bank Youssef Al- Khalil, interest rates on local Treasuries will remain around current levels until after the 2000 budget is passed sometime towards the end of this year. Mr. Khalil added that the Central Bank may allow mild decreases in local rates if accompanied by an improvement in the fiscal and political situation. All yields on Lebanese Treasuries held their ground on November 4 th for the third straight week as the Central Bank continued to sell TBs two weeks in advance. The Central Bank sold LP28bn ($18.6m) worth of 45-day CDs and LP26bn ($17.2m) of 60-day CDs on October 22. Banque d Affaires du Liban et d Outre-Mer s.a.l. 3

5 EUROBOND MARKET Reuters Lebanese Government Bond Index 22/10/99 15/10/99 % Reuters Bond Index % Lebanese Government Eurobonds Maturity-Coupon 22/10/99 Weekly Yield % % % 6.93% % % 7.70% % (DM) % 6.48% % % 8.77% % % 9.20% % (Euro) % 7.79% % % 9.02% % (Euro) % 8.87% % % 9.17% % % 10.25% All eurobonds are in USD unless otherwise indicated. Trading in Lebanese eurobonds was limited to the point of illiquidity this week, with official bid-offer ranges not clearly reflecting this. Byblos Bank did not go ahead with an expected 5-year eurobond of between $75-$100m this week, which was supposed to help cover a 3-year $50m eurobond that matured on September 23 rd. Vice-chairman Semaan Bassil said that the bank has no plans for the time being to tap into the market, reflecting the prevailing unfavourable market conditions for new issuers in general. The market is still digesting the government s $712m bond issue of last month and investor interest is presently more focused on local TBs. US Treasuries took a beating this week, with shorter-termed maturities bearing the brunt. Fears of a possible rate hike following the FOMC s next meeting on November 16 th continued to haunt investors, even after CPI data released Tuesday fell in line with market expectations. A $5bn corporate debt issuance from Ford Motor Credit Co priced about 1 ¼ points over Treasuries sent the latter reeling, as the Federal Reserve Bank of Philadelphia offered the final blow when it reported that prices manufacturers paid for materials jumped in October from the previous month. Next week s mood will depend upon the third-quarter Employment Cost Index and the government s preliminary estimate of thirdquarter GDP growth, both due Thursday. Issuer Lebanese Corporate Eurobonds Maturity- Coupon 22/10/99 Weekly % Yield Mediterranee % (0.27%) 5.34% BoB % % 7.14% Audi % % 7.75% BoB % % 8.12% Mediterranee % % 8.33% Libano-Francaise % % 8.00% Byblos Bank % % 8.36% Credit Libanais % (0.50%) 8.45% Mediterranee % % 8.64% 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 Gross FX Reserves Up 11.1% in First-Half of October Economic Statistics The BDL s bi-weekly balance sheet revealed that its gross foreign exchange reserves increased in the first-half of October 1999 by $750m, the largest increase this year, to $7,505m, its highest level in the post-war period. The sudden surge in FX reserves resulted from the dual-currency $712m eurobond issuance on September 22, 1999, with proceeds received in the first-half of October. The Central Bank continued to absorb excess foreign currency amid sustained demand for local government securities. On a year-to-year basis, the BDL s gross foreign exchange reserves increased 16.7% from $6,430m. Million $7,600 $7,200 $6,800 $6,400 $6,000 $6,430 Gross FX Reserves $6,755 $7,505 Oct. 15, 1998 Sep. 30, 1999 Oct. 15, 1999 Trade Deficit Down in September The High Customs Council released data showing that Lebanon s trade deficit narrowed by 13.3% in September 1999, to $432m. The level of exports rose 15% from August to $69m in September 1999, while imports were $57m lower at $501m. For the first nine months of 1999, the trade deficit fell by 13.6% to $4.10bn, compared to $4.75bn during the same period in Million $525 $500 $475 $450 $425 $400 $490 Trade Deficit $498 $432 Sep. '98 Aug. '99 Sep. '99 Lebanon's imports in the year to September mainly came from Italy ($507m), France ($437m), Germany ($401m), U.S.A. ($385m), while its major export markets were U.A.E. ($54m), Saudi Arabia ($51m), France ($43m), Holland ($29m), and U.S.A. ($28m). Machinery and appliances ($693m) ranked first among imports, while jewelry ($78m) held top spot on the export list. Banque d Affaires du Liban et d Outre-Mer s.a.l. 5

7 New Board for the Bourse The Lebanon Brief Following a Cabinet meeting, a new board for the bourse was elected that will be headed by Fadi Khalaf, a doctorate holder from the Sorbonne. Lawyer and author of the book The Organization of Lebanese Banks Ghaleb Mahmasani will be the new deputy president. Other board members include: Professor Suzy Samerdjian, Chairman and General Manager at Bank of Beirut and the Arab Countries Ghassan Assaf, Salim Tayyara of Arab Bank s legal department, Banque Libano Francaise s Jamal Mansour, Vice-Chairman of Byblos Bank Seman Bassil, Head of Credit Agricole Indosuez Libanais Fouad Trad, Middle East Capital Group s Karim Soueid and Saeb Zein from Credit Suisse First Boston. Finance Minister Georges Corm announced that, with assistance from the International Financial Corporation, he was preparing a new law to regulate the local stock exchange which would make the local bourse more attractive to foreign investors. WB Official Supports MEA s Privatisation According to Peter Woicke, executive vice president of the International Finance Corporation (IFC), the government is close to making a decision to privatise Middle East Airlines (MEA). Despite MEA s losses, more than $350m since 1991, Woicke saw no reason why the airline should not be an attractive proposition to the private sector. Woicke said the World Bank (WB) could help lessen the political and social impact of privatisation by providing compensation for employees who might be redundant. The IFC official also highlighted the need to improve transparency and crack down on corruption in both the public and private sectors. The IFC has been asked by the president and prime minister to help restructure the Investment Development Authority of Lebanon (IDAL). This task could be undertaken by the Foreign Investment Advisory Service which, like the IFC, is an arm of the World Bank. EIU Reports on Lebanon In its latest country report covering Lebanon, for the 4 th quarter of 1999, the Economist Intelligence Unit (EIU) noted that the new government s honeymoon period has come to an end mainly due to internal squabbling and unpopular economic reform. However, the report expected the government to survive until next year s parliamentary election. The peace process will move forward slowly and some form of treaty with Israel should be in place by 2001, predicted the report. The government will have to concentrate on improving its tax collection infrastructure and will seek to implement VAT in The EIU expected the economy to move into recession this year, at about 1% in real terms, although positive growth of around 0.5% is likely in 2000, and growth could be as high as 5% in 2001 if a peace treaty with Israel is in place. The current account will remain in deficit this year, although the trade deficit will continue to narrow. Weekly Developments Banque d Affaires du Liban et d Outre-Mer s.a.l. 6

8 Weekly Developments EIU Reports on Lebanon cont d The following table represents a summary of the EIU forecasts on the Lebanese economy: ($m unless otherwise indicated) 1998 a 1999 b 2000 b 2001 b Real GDP Growth (at 1987 Prices, %) CPI (av,%) Merchandise Exports (fob) 716c ,010 Merchandise Imports (fob) 6,510 5,859 5,449 5,558 Trade Balance -5,749-5,036-4,531-4,548 Services Balance Income Balance Current Transfers Balance 2,538 2,608 2,648 2,711 Current Account Balance -2,690-1,737-1, % of GDP Exchange Rate (EoP) 1,508c 1,501 1,500 1,500 Exchange Rate (Av.) 1,516c 1,505 1,502 1,501 a EIU estimates b EIU forecasts c Actual Banque d Affaires du Liban et d Outre-Mer s.a.l. 7

9 BLOM Announces First-Nine Months 1999 Profits Banque du Liban et d'outre-mer S.A.L. (BLOM), the largest bank in Lebanon, announced that its consolidated net profits for the first nine months of 1999 rose 19.6% from $43.95m in the same period in 1998 to $52.58m. BLOM maintained a high annualised return on average equity during the firstnine months of 1999 of around 28.5% and a return-on-average assets of 1.57%. Earnings per share rose to an annualised $3.79 from $3.17 in the firstnine months of 1998, resulting in a current P/E of only 6.41 and a yield on the market value of BLOM's GDR of 15.6%. The Bank's assets increased 13.96% from a year before to stand at $4.74bn as at the end of September 1999, while customer deposits were 12% higher at $4.1bn. Loans outstanding totalled $1.05bn, against $974m at end of September Tier I capital rose 20.7% between end-september 1998 and end-september 1999 to $251.6m. Tier I and Tier II capital together amounted to $342.4m. BLOM's loans-to-deposits ratio was only 25.67% overall and 36.64% in foreign currency. These figures underline the Bank's high level of liquidity. These results maintain the trend of strong and balanced growth witnessed by BLOM in recent years, consolidating its leading position among banks in Lebanon. Audi Posts Lower 9-Month Profits Banque Audi, one of Lebanon s largest banks, posted net profits for the first nine months of 1999 of LP37.43bn ($24.8m), down from LP39.93bn ($26.4m) for the same period in According to the bank, profits were depressed by the costs of expansion and development of new products, higher levels of debt provision and a five-percentage point increase in income tax to 15%. Fransabank's Assets Up 18.6% in First-Half 1999 Fransabank S.A.L., one of Lebanon's top 10 banks, released balance sheet figures for the first six months of The bank's assets rose 18.6% to $2.3bn, and deposits increased 20% to $1.8bn, while loans were 22.56% higher at $652m. Shareholders equity was up 20.2% on a year before, at $170m. Fransabank ranked 6 th in 1998 in terms of assets with $2.20bn, and 5 th in terms of shareholders equity with $160.92m. Corporate News Banque d Affaires du Liban et d Outre-Mer s.a.l. 8

10 IFC Lends Byblos & BBAC $92m The International Finance Corporation (IFC) declared during visits to Lebanon that it will extend $300m to $500m in loans to he country in order to help finance profitable projects, create jobs and promote certain environmental projects. Corporate News In addition, the IFC is to provide Byblos Bank and the Bank of Beirut and the Arab Countries (BBAC) with a $92m loan aimed at increasing the amount of capital available for housing loans and activating the real-estate sector. Byblos is to receive $80m, whereby $30m will be provided by the IFC while the remaining $50m is to be furnished by other international banks. On the other hand, BBAC will get $12m from the IFC itself. Banque d Affaires du Liban et d Outre-Mer s.a.l. 9

11 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. 10

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