THE LEBANON BRIEF. ISSUE 099 Week of 22 December, January 2015

Transcription

1 Your Investment Reference THE LEBANON BRIEF ISSUE 099 Week of 22 December, January 2015 ECONOMIC RESEARCH DEPARTMENT Rashid Karame Street, Verdun Area P.O.Box Beirut, Lebanon T (01) F (+961) research@blominvestbank.com

2 The Lebanon Brief Page 2 of 18 TABLE OF CONTENTS FINANCIAL MARKETS 3 Equity Market 3 Foreign Exchange Market 5 Money & Treasury Bills Market 5 Eurobond Market 6 ECONOMIC AND FINANCIAL NEWS 7 Lebanon Trade Deficit Stood at $15.80B by November 7 Consumer Price Index Rose to in November 8 Lebanese Gross Public Debt Widened to $66.21B by October 9 Value of Real Estate Sales Transactions Hit $8.05B by November 9 Beirut Occupancy Rate Reached 51% in November 10 Consumer Confidence Index (CCI) Improved to 71 Points in November 11 Ministry of Finance Laid Down it Medium Term Debt Strategy for CORPORATE DEVELOPMENTS 13 Fransabank Increases its Capital by $85M 13 First National Bank Merged with Corporate Finance House and Increased its Capital to $110.32M 13 FOCUS IN BRIEF 14 The Aluminium Sector in Lebanon: Resilience in the Face of Challenges 14 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 3 of 18 FINANCIAL MARKETS Equity Market Stock Market 02/01/ /12/2014 % Change BLOM Stock Index* 1, , % Average Traded Volume 861, , % Average Traded Value 5,022,239 1,208, % *22 January 1996 = 1000 BLOM Stock Index HI: 1, Banking Sector LO: 1, Jan-14 May-14 Sep-14 Jan-15 Mkt 02/01/ /12/2014 % Change BLOM (GDR) BSE $9.80 $ % BLOM Listed BSE $8.80 $ % BLOM (GDR) LSE $10.30 $ % Audi (GDR) BSE $6.79 $ % Audi Listed BSE $6.10 $ % Audi (GDR) LSE $6.20 $ % Byblos (C) BSE $1.66 $ % Byblos (GDR) LSE $76.50 $ % Bank of Beirut (C) BSE $18.40 $ % BLC (C) BSE $1.70 $ % Fransabank (B) OTC $22.00 $ % BEMO (C) BSE $1.75 $ % Mkt 02/01/ /12/2014 % Change Banks Preferred Shares Index * % Audi Pref. E BSE $ $ % Audi Pref. F BSE $ $ % Audi Pref. G BSE $ $ % Audi Pref. H BSE $ $ % Byblos Preferred 08 BSE $ $ % Byblos Preferred 09 BSE $ $ % Bank of Beirut Pref. E BSE $26.25 $ % Bank of Beirut Pref. I BSE $25.90 $ % Bank of Beirut Pref. H BSE $26.25 $ % BLOM Preferred 2011 BSE $10.20 $ % BLC Pref A BSE $ $ % BLC Pref B BSE $ $ % BLC Pref C BSE $ $ % Bemo Preferred 2013 BSE $ $ % With the start of the New Year, the Beirut Stock Exchange (BSE) showed improvement, with the BLOM Stock Index (BSI) recording a 1.72% rise over the past two weeks to close at 1, points on Friday. Trade activity strongly recovered from a very weak performance during the week ending December 19 th, with the average traded volume rising from 150,864 shares worth $1,208,097 to 861,173 shares worth $5,022,239. It is worth noting here that the averages were greatly influenced by a heavy trading day on the 23rd of December, during which 3.93M Audi listed shares were cross-traded for a total value of $24.25M. As for the market capitalization, it widened by $69.97M over the past 2 weeks to $9.87B. Despite the noticeable progress, the BSI lagged behind its regional peers, as the S&P AFE 40 Index, the S&P Pan Arab Composite Large Midcap Index and the Morgan Stanley Emerging Markets Index (MSCI) all posted greater 2-week increases of 3.43%, 3.20% and 2.26% to close at respective values of points, points and points. In the Arab World, the BSI only outperformed the Tunisian bourse over the past two weeks, which remained relatively stable with a slight uptick of 0.19%. While all the stock markets posted rises, the three best performers were Muscat s index, Dubai s financial market, and Qatar s bourse, with increases of 11.77%, 10.14% and 9.87%, respectively. Back to the BSE, the banking sector contributed 95.24% of total traded value over the past 2 weeks and was followed by the real estate sector with a share of 4.54%. The remaining share was distributed between the industrial and retail sectors, with 0.04% and 0.18%, respectively.

4 The Lebanon Brief Page 4 of 18 Real Estate Mkt 02/01/ /12/2014 % Change Solidere (A) BSE $11.47 $ % Solidere (B) BSE $11.23 $ % Solidere (GDR) LSE $11.45 $ % In the banking sector, BLOM Bank GDR and listed shares posted improvements of 1.66% and 0.57% to respectively close at $9.80 and $8.80. Bank Audi GDR and listed shares also gained 9.34% and 0.83% to $6.79 and $6.10, respectively. In addition, Byblos Bank listed and Bank of Beirut (BoB) listed shares rose by 3.75% and 0.05% to $1.66 and $18.40 per share, respectively. Manufacturing Sector Mkt 02/01/ /12/2014 % Change HOLCIM Liban BSE $15.25 $ % Ciments Blancs (B) BSE $3.75 $ % Ciments Blancs (N) BSE $2.75 $ % Funds BLOM Cedars Balanced Fund Tranche A BLOM Cedars Balanced Fund Tranche B BLOM Cedars Balanced Fund Tranche C Mkt 30/12/ /12/2014 % Change $7, $7, % $5, $5, % $5, $5, % BLOM Bond Fund $9, $9, % Similarly, the BLOM Preferred Stock Index (BPSI) edged up by 0.11% to points, as BoB preferred shares classes E and H gained 0.96% each, to close at equal prices of $ On the London Stock Exchange (LSE), the Global Depository Receipts (GDRs) of BLOM Bank and that of Solidere increased by 3% and 4.09% to $10.30 and $11.45, respectively. In contrast, the GDRs of Audi lost 2.36% to $6.20. In the real estate sector, Solidere shares classes A and B recovered the losses witnessed two weeks ago, and have since rebounded to post upticks of 3.61% and 2.18% to close at $11.47 and $11.23, respectively. In the industrial sector, Holcim shares witnessed a 5.92% drop in price to $15.25 per share. Retail Sector Mkt 02/01/ /12/2014 % Change RYMCO BSE $3.23 $ % ABC (New) OTC $27.00 $ % Tourism Sector Mkt 02/01/ /12/2014 % Change Casino Du Liban OTC $ $ % SGHL OTC $7.00 $ % In the retail sector, RYMCO shares posted a 1.25% uptick to $3.23 per share. Looking forward, we can expect positive performance on the BSE to continue in the coming week, boosted by a positive trading sentiment and ahead of the release of fourthquarter financial results.

5 The Lebanon Brief Page 5 of 18 Foreign Exchange Market Lebanese Forex Market 02/01/ /12/2014 % Change Dollar / LP 1, , % Euro / LP 1, , % Swiss Franc / LP 1, , % Yen / LP % Sterling / LP 2, , % 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. Nominal Effective Exchange Rate (NEER) Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Money & Treasury Bills Market Money Market Rates 02/01/ /12/2014 Change bps Overnight Interbank BDL 45-day CD BDL 60-day CD Treasury Yields 02/01/ /12/2014 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 Demand for the dollar declined over the prior 2 weeks as reflected by the Lebanese pound s peg against the dollar that went down from $/LP 1,510-1,514 with a mid-price of $/LP 1,512 to $/LP 1,509-1,513 with a mid-price of $/LP 1,511. Foreign assets (excluding gold) at the Central Bank dropped a monthly 0.37% from $38.87B at end-october to $38.73B by end-november. Meanwhile, the dollarization rate of private sector deposits stood at 65.72% in October compared to 66.13% in December The euro tumbled against the greenback amid strong signs that the European Central Bank will soon start an outright money-printing. The euro weakened against the dollar by 1.77%, ending the prior 2 weeks at /$ Speculations that the Federal Reserve in the U.S will raise interest rates continued to reduce the demand for gold. The price of gold went down from $1,197.65/ounce on Thursday 18th of December 2014, to $1,181.60/ounce this week. By Friday January 2nd, 2015, 12:30 pm Beirut time, the dollarpegged LP appreciated against the euro going from /LP1,850.46, the prior week, to /LP 1, The Nominal effective exchange Rate (NEER) gained 0.97%, in the past 2 weeks, to points, where its year-to-date gain reached 0.48%. During the two weeks ending December 18, 2014, broad Money M3 increased by LP 332B ($220.29M), to reach LP 175,926B ($116.70B). M3 growth rate reached 6.50% year-onyear and 4.99% since year start. In contrast, M1 lost LP 246B ($163.37M) due to the decrease in money in circulation by LP 248B ($164.51M) and an uptick in demand deposits by LP 2B ($1.33M), respectively. Total deposits (excluding demand deposits) increased by LP B ($383.66M), given the rise in deposits denominated in foreign currencies and term and saving deposits in domestic currency by $183M and LP 302B, respectively. Over the above mentioned period, the broad money dollarization rate edged up from 58.70% recorded in the past 2 weeks to 58.74% by December 18, According to the Central Bank, the overnight interbank rate stood at 2.75% at the end of October In the TBs auction held on the 25th of December 2014, the Ministry of Finance raised LP B ($352.88M), through the issuance of bills maturing in 1Y, and 2Y and 3Y notes. The highest demand was achieved on the 3Y notes that took a share of 86.39%, while the 1Y bills and the 2Y notes accounted for 9.47% and 4.14%, respectively. The 1Y bills yielded 5.08%, while the average coupon rate for 2Y and 3Y notes stood at 5.84% and 6.50%, respectively. New subscriptions exceeded maturing T-bills by LP B ($126.30M).

6 The Lebanon Brief Page 6 of 18 Eurobond Market Eurobonds Index and Yield 31/12/ /12/2014 Change Year to Date BLOM Bond Index (BBI)* % 1.78% Weighted Yield** 5.40% 5.37% 3 38 Weighted Spread*** Eurobonds Lebanese Government Maturity - Coupon 31/12/2014 Price* 18/12/2014 Price* Weekly% Change 31/12/2014 Yield 18/12/2014 Yield Weekly Change bps 2015, Aug % % 3.72% 3.95% , Jan % % 3.92% 3.88% , May % % 3.94% 4.03% , Mar % % 4.39% 4.55% , Jun % % 4.84% 4.97% , Mar % % 5.48% 5.54% , Apr % % 5.68% 5.74% , Oct % % 5.86% 5.90% , Jan % % 5.94% 5.99% , Dec % % 6.23% 6.26% , Nov % % 6.39% 6.43% , Nov % % 6.43% 6.44% -1 *Bloomberg Data Weighted Effective Yield of Eurobonds 6.00% 5.50% 5.00% Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Demand for the Lebanese Eurobonds slightly improved during the past 2 weeks, where the BLOM Bond Index (BBI) gained 0.17%, to stand at points, with a 1.78% gain since year start. Accordingly, demand for medium and long term maturities inched up by year-end, with the 5Y and 10Y yields on the Lebanese Eurobonds dropping 1 basis point (bp) and 2 bps to 5.38% and 6.28%, respectively. In the U.S, demand for treasuries rose triggered by an international slowdown in economic growth and low inflation, where the 5Y and 10Y yields lost 3 bps and 5 bps to 1.65% and 2.17%, respectively. Correspondingly, the 5Y and 10Y spreads between the Lebanese Eurobonds and their U.S benchmark narrowed by 2 bps and 3 bps to 373 bps and 411 bps, respectively. Demand on emerging market bonds progressed amid a slowdown in global economic growth and amid speculations that the Chinese government will further ease monetary policy. This led the JP Morgan Emerging Countries bond index to increase by 1.24% to points. In Lebanon, the 5Y CDS went down from the past 2 weeks quote of bps to bps, this week. Likewise the 5Y CDS of Saudi Arabia decreased from bps to bps, whereas that of Dubai broadened from bps to bps. Internationally, the 5Y Brazil decreased from and bps to bps, during the same period, while that of Turkey broadened from bps to bps..

7 The Lebanon Brief Page 7 of 18 ECONOMIC AND FINANCIAL NEWS Lebanon Trade Deficit Stood at $15.80B by November Total Imports and Exports by November (in $B) Lebanon s trade deficit for the first 11 months of 2914 widened by a minor 0.40% year-on-year (y-o-y) to $15.80B.This came as a result of a yearly decrease in both imports and exports by 3.94% and 17.68%, respectively. Lebanon s exports covered 19.24% of the imports by November 2014, down from 23.46% for the same period in Exports Imports Total imports stood at $18.85B, by November, compared to $19.44B by November The three major goods imported to Lebanon were mineral products (24.23% share of total imports), machinery and electrical instruments (10.58% share of total imports), and products of the chemical or allied industries (9.76% share of total imports). Mineral products decreased by 2.16% y-o-y on international bearish trend in oil prices. Machinery and electrical instruments dropped by 16.46% y-o-y, while products of the chemical or allied industries rose 3.02% y-o-y. The three major countries that Lebanon imports products from were China, Italy and France, with respective weights of 12.06%, 8.15% and 6.36%. Source: Lebanese Customs Concomitantly, total exports stood at $3.04B, compared to $3.69B by November Pearls, precious stones and metals, representing 16.79% of total exports, plummeted by 31.57% annually, while prepared foodstuffs, beverages and tobacco (15.32% share of total exports) increased 14.29% y-o-y. The third main Lebanese export, Machinery and electrical instruments (13.36% share of total exports), declined by 13.40%. The three major destinations of Lebanese exports were Saudi Arabia, South Africa, and the United Arab Emirates, with weights of 11.36%, 9.58% and 9.57%, respectively. For the month of November alone, Lebanon s trade deficit narrowed by 24.13% y-o-y to $1.14B, following a 5.68% y-o-y decrease in exports and 21.39% drop in imports. The decline in total imports, in November, was triggered by the 52.30% plunge in mineral products, due to the decrease in the price of oil.

8 The Lebanon Brief Page 8 of 18 Consumer Price Index Rose to in November CPI in November Inflation rate reached 0.89% year-on-year (y-o-y) where the Consumer Price Index (CPI) increased to in November 2014, compared to in November 2013 (noting that this level is adjusted on the new base of 100 in December 2013). Of the 13 sub-indices, 10 increased while the remaining three posted declines Source: CAS In details, Clothing and footwear, Alcoholic beverages and tobacco and Education witnessed the highest y-o-y increases and demonstrated 18.48%, 8.56% and 4.55% upticks to respective levels of , and Similarly, the Actual rent and Furnishings, household equipment and routine household maintenance sub-indices edged up by a yearly 3.90% and 1.77% to respective values of and On a positive note, the tourism-related indices improved in November, with Restaurant and hotels and Recreation, amusement and culture rising by 3.37% and 2.26% y-o-y to and , respectively. The Food and non-alcoholic beverages sub-index posted an annual 3.25% uptick to In addition, the Health sub-indices posted the lowest yearly growth of 1.16% to On the other hand, the sub-index that displayed the greatest decrease was Communication with a 24.92% downturn to following the reduction of telecom costs in June. The Transportation and the water, gas, electricity and other fuels sub-indices also posted decreases of 3.93% and 3.87% to and 95.21, respectively, probably due to the declining trend of oil prices. On a month-on-month basis, November s CPI edged down by 0.44% compared to October Regionally, the CPI of each of the individual regions (Beirut, Mount Lebanon, North, Bekaa, South and Nabatieh) displayed decreases. The biggest monthly decrease was witnessed in the Bekaa region by 0.94%. Meanwhile, the region to display the smallest monthly change was the North, with a slight 0.19% downtick.

9 The Lebanon Brief Page 9 of 18 Lebanese Gross Public Debt Widened to $66.21B by October Gross Debt in Domestic and Foreign Currencies (in $B) Dec 13 Oct 14 Debt in Local Currency Debt in Foreign Currency Lebanese gross public debt reached $66.21B, increasing by 4.33% year-to-date (y-t-d) by October Gross public debt accounted for 146% of Lebanon s GDP, compared to 140% of GDP in December Gross local currency debt jumped by 7.81% since year-start to a value of $40.26B, capturing a share of 60.82% of gross public debt. In contrast, debt denominated in foreign currencies displayed a 0.65% decline, during the same period, to $25.94B as of end-october Net public debt, which is equal to the total public debt less the government s deposits at both commercial banks and the Central Bank, widened 5.73% y-t-d to $56.23B by October Regarding outstanding T-bills denominated in local currency, commercial banks maintained their position as the major holder, with a share of 51%, followed by the Central Bank with 31.7% and the non-banking sector with 17.1%. Source: ABL Average Value of Property Sales Transactions by November 79, , , , , , Value of Real Estate Sales Transactions Hit $8.05B by November Total real estate transactions added an annual 2.67% during the first 11 months of 2014, to reach 63,651 transactions. Similarly, total value of property sales transactions amplified 4.99% yearon-year (y-o-y) to $8.05B by November. Hence, the average value of real estate transaction grew from $123,656 in the first 11 months of 2013, to $126,446 in The GCC travel bans to Lebanon, which were implemented beginning of 2014, were partly behind the continuous decrease of sales to foreigners, where their share shrank to 1.59% of total real estate transactions by November 2014, compared to a higher share of 1.78% during the same period last year. This implies that Lebanese residents and non-residents are the principal factors behind the improvement in the real estate market Source: Cadastre

10 The Lebanon Brief Page 10 of 18 Beirut Occupancy Rate Reached 51% in November Beirut s Monthly Occupancy Rates 67% 60% 59% 52% 52% 63% 42% 56% 51% 47.0% 41% 36% 36% Ernst and Young s Middle East Hotel Benchmark Survey portrayed a 51% hotel occupancy rate in Lebanon for the month of November. This rate represented an increase of 4 percentage points (p.p) from the same period in In contrast, the Average Room Rate (ARR) posted a 1.8% annual decline to $160, while the Revenue per Average Room (RevPAR) gained 6.4% year-on-year (y-o-y) to $83. The occupancy rate is expected to show a bigger progress next month, as hotels usually see rises in bookings over the holidays. On a cumulative basis, Lebanon s hotel occupancy rate also stood at 51%, a decline of 1 p.p from the same period last year. The ARR and RevPAR also posted year-to-date (y-t-d) downticks of 3.5% and 4.9% to $162 and $83, respectively. Source: Ernst and Young s Middle East Hotel Benchmark Survey Regionally, Riyadh and Cairo improved the most during the first 11 months of 2014 as the former saw several events take place during the period while the latter benefited from improvement on the security and political fronts. The two cities occupancy rates yearly rose by 9 p.p each, by November, to 34% and 66% respectively. The RevPAR for the same period increased in both Cairo and Riyadh by 47.2% and 12.7% to respective values of $31 and $143. However, the ARRs in the respective cities followed differing trends, with Cairo s ARR improving by 11.8% y-o-y to $92, while that of Riyadh lost an annual 2.4% to $214. Meanwhile, Kuwait was the worst performer during November, with occupancy rates dropping by an annual 11 p.ps to 48%. Consequently, the RevPAR lost 11.5% to $146, while the ARR rose by 7.8% annually to $299.

11 The Lebanon Brief Page 11 of 18 Consumer Confidence Index (CCI) Improved to 71 Points in November CCI Historic Levels According to ARA Marketing Research and Consultancy, the Consumer Confidence Index (CCI) improved 13 points in November, to 71 points. Talks about a possible breakthrough in the ongoing political stalemate and the Minister Abou Faaour s efforts to fight food safety violations were behind the progress of confidence among Lebanese. 71 The Security Situation Index also jumped 68 points to points as the Lebanese Army and security forces continue to stabilize the security environment in the country. Even though the Current Economic Situation Index rose by 61 points to 131 points, the Current Personal Income Index continued its downtrend declining by 5 points to 49 points. Source: ARA Marketing Research and Consultancy The Expected Economic Situation Index and the Expected Personal Income Index added 8 points and 7 points to 55 points and 64 points, respectively. This implies that the Lebanese consumers foresee a better economic standing ahead of Finally, the Purchase of Durable Goods Index dropped by 8 points in November, to reach 77 points, its lowest level since January 2008.

12 The Lebanon Brief Page 12 of 18 Ministry of Finance Laid Down it Medium Term Debt Strategy for Cost and Risk Indicators end of 2013 Foreign Debt Domestic Debt Gross Debt Amount ($B) as % of GDP Weighted average interest rate 6% 7% 6% Cost as % of government revenues 17% 24% 40% Average time to maturity 5.6Y 3.5Y 4.3Y Average time to re-fixing 5.5Y 3.5Y 4.3Y Source: Ministry of Finance The Ministry of Finance laid down its Medium Term Debt Strategy for the period , where the main aim is that the government s financing needs and its payment obligations are met at all times, at the lowest possible cost over the medium to long run and consistent with a prudent, acceptable degree of risk. Moreover, another goal is to develop primary and secondary domestic markets through a predictable domestic issuance strategy. After studying the country s fiscal situation, the findings were as follows. First, Lebanon s gross public debt-to-gdp ratio, which is among the highest in the world, stood at 138% end of 2013, up from 132% in 2012, still below its 180% peak in If adjusted for the public sector s idle cash deposits in commercial banks and the Lebanese Central Bank, public debt would stand at 116% of GDP, end of Moreover, 40% of total debt was in foreign currency, below the agreed ceiling of 50%. The study also showed that the share of interest cost to government revenues had risen 2% in 2013, to 40%, leaving less fiscal space for development expenditures. Following an analysis of alternative financing strategies, the report stated that rollover risk of maturing debt and the possible adverse interest rate movements can be mitigated by extending maturities, more debt at fixed interest rate, and more debt in the local currency. The lower risk of a financing strategy would generally entail a higher cost. Accordingly, testing a wide range of financing strategies through simulation against a variety of market shocks over a 3Y period allowed the ministry to base its strategy for on an increased reliance on foreign borrowing over the same period to mainly cover for the redemption and the interest payments of foreign currency debt. However, the government will continue the gradual extension of maturities that has been achieved in the past years, aiming to lengthen the average time to maturity.

13 The Lebanon Brief Page 13 of 18 CORPORATE DEVELOPMENTS Fransabank Preferred Shares Series D Issued Shares Number of Issued Shares Preferred Shares Series D 425,000 Issue Price $200 Nominal Value $13.27 Characteristics Perpetual, Non-cumulative, Redeemable Annual Dividend $13 Withholding tax rate Source: Midclear 10% Fransabank Increases its Capital by $85M On the 26th of December 2014, Fransabank increased its capital by $85M through the issuance of 425,000 new preferred shares, not listed on the Beirut Stock Exchange (BSE). These shares are non-cumulative redeemable preferred shares of series D, with a nominal value of $13.27 (LBP 29,999) per share, and an issue price of $200 per share. Annual dividend, for year 2015 and after, is equal to $13, 6.50% of the issue price, subject to a 10% withholding tax. Dividends on account of year 2014 is 6.75% prorated to approximately reflect the remaining period from the issue date to end of FNB Financial Highlights in Q (in $M) Value YTD Change Total Assets 3, % Net Loans and Advances to Customers % Total Shareholders' Equity % Net Profit % Source: Bankdata First National Bank Merged with Corporate Finance House and Increased its Capital to $110.32M In an attempt to expand market share and increase foreign capital, First National Bank (FNB) and Corporate Finance House (CFH) announced, on December 22 nd, the merging of both companies operations. FNB completed the merger in order to benefit from CFH s experience in financial advisory, and aimed to distribute the $53M in common shares raised among the clients and general managers of the bank. The merger enhanced the total value of common shares to a range of $120M-$125M and will be used to expand on both local and regional levels. On the 26th of December 2014, First National Bank (FNB) increased its capital from $106.14M to $110.32M. The capital increase took place over the counter through the issuance of 630,000 new ordinary nominal shares priced at $6.63 (LBP 19,999) per share. Hence, the total number of FNB s ordinary shares became 16,080,000.

14 The Lebanon Brief Page 14 of 18 FOCUS IN BRIEF The Aluminium Sector in Lebanon: Resilience in the Face of Challenges Constitution of Aluminium Imports, 2013 Constitution of Aluminium Exports, % 6% 13% 23% Unwrought aluminium. Aluminium bars, rods and profiles. Aluminium casks, drums, cans, boxes Aluminium plates, sheets and strip 13% 5% 11% 48% Aluminium waste and scrap. Aluminium bars, rods and profiles. Aluminium structures 11% 17% 21% Table, kitchen or other household articles Aluminium wire. Others 23% Aluminium casks, drums, cans, boxes Others Source: Lebanese Customs So what do sapphires, rubies, soda cans, forks, knives, helicopters, airplanes, cars, and some electronics all have in common? They all contain aluminium, the third most abundant resource in the earth s crust. 1 How Aluminium is made The process of making this multi-purpose metal 2 starts with the mining of bauxite. Discovered for the first time in France in 1821, bauxite is a rock but more than that, it is the world s premier source of aluminium. The bauxite production giants are Australia (31%), China (16%), Brazil (14%), Indonesia (12%), Guinea (7%), India (6%), Jamaica (4%), Kazakhstan (2%), Russia (2%) and Suriname (1%). After extraction, the bauxite is refined in order to obtain Alumina, also referred to as aluminium oxide. The next step consists of refining this alumina in order to turn it into liquid aluminium. The liquid aluminium is then casted in different molds depending on what the aluminium will be used for. The molds can either be Extrusion ingots, Sheet ingots or foundry alloys. In the extrusion technique, the aluminium billet is heated and pushed through a die, a tool that determines the shape of the aluminium profiles. If the aluminium is molded into sheet ingots, the purpose is to make rolled products such as plates, strip and foil. Whereas when foundry alloys are used in the process, the metal is usually destined to be used for car parts. Global Aluminium Highlights Aluminium is traded on the London Metals Exchange (LME), the bedrock of industrial metals trading. A premium is added to the LME Aluminium price and that premium depends on the delivery costs entailed when the metal is transported from one destination to the other. According to the International Aluminium Institute, total primary aluminium production reached 50,602 thousand metric tons in 2013, 5% higher than China remained a heavyweight in primary aluminium production accounting alone for around 49% of the total, followed by 10% accounted for by North America and 8% for each the GCC region as well as East and Central Europe. 1 According to the Australian Aluminium Council 2 According to Hydro Aluminium Company

15 The Lebanon Brief Page 15 of 18 On a worldwide scale, big names in the aluminium industry are United Co. Rusal, Rio Tinto Group, Alcoa Inc, Aluminium Corp. of China, Norsk Hydro, Dubai Aluminium, China Power Investment Co, Weiqiao Pioneering Group Co, BHP Billiton Ltd., Shandong Xinfa Aluminum and Electricity Group and Aluminium Bahrain BSC. A Middle Eastern company Dubai Aluminium most commonly referred to as Dubal is on that list and for a reason. Countries like Dubai have made good use of their cheap energy advantage to venture out in energy-intensive activities such as producing aluminium. In fact, it is important to note that the refining of the bauxite rather than its extraction is the energy intensive step of the process. 1 ton of extracted bauxite requires 1.5 kilograms of fuel oil and less than 5 Kwh of electricity whereas obtaining 1 ton of alumina (refined bauxite) requires 14.5 Gigajoules of energy and 150 Kwh of electricity. Lebanese Aluminium Industry The Extruders In Lebanon, there is no production of aluminium only a transformation process. According to market aficionados, production of aluminium in Lebanon is not an option due to raw material insufficiency and due to the burdensome energy and labor costs. According to a top market player, the monthly energy bill for the 8 generators of his 24-hours running factory amounts to $90,000. Alternative energy resources such as solar and wind energy have been contemplated by some players but have been later ruled out as they were deemed too costly and unsuited for the needs of their factories. However, the processes of extrusion, powder coating, anodizing, die manufacturing, are present in Lebanon. Lebanese aluminium industrials import unworked aluminium and then apply the extrusion process (explained above) to transform the unworked aluminium into profiles. Powder coating is a finishing step for aluminium where a spray gun is used to apply a powder made up of colored pigments, leveling agents and other additives to the aluminium. The powder can color the aluminium, give it a wood-effect all while protecting it from cold, heat or corrosion. As for anodizing, it is also another finishing process that creates a protective coat over the aluminium. The most prominent names in the extrusion of Aluminium industry are Sidem, Alutex, Aluxal and Alexco. It is believed that Sidem alone accounts for around 40% of the market. The Lebanese Trade of Aluminium Trade figures from 2010 to 2013 show that the balance of trade for aluminium products is constantly in the red. In 2013, aluminium exports totaled $70.52M while the imports amounted to $203.33M making the balance stand at -$132.82M. When asked, all market players linked this to competition from foreign products which are 20-25% cheaper. According to a market source, while the price tag for Lebanese aluminium profiles falls in the range of $4,000-$7,500 per ton, a ton of Egyptian profiles costs only $3,200. According to market sources, a tariff of 10% is applied only on 2 out of 6 aluminium import segments. Market players have deemed this an insufficient measure to protect the Lebanese aluminium extruders. Unwrought or unworked aluminium holds the largest share in Lebanese aluminium imports. According to customs figures, 20,512 tons of unwrought aluminium were imported in In 2013, the value of unwrought aluminium imports amounted to $46.92M, of which 99% came from the United Arab Emirates. Aluminium bars, rods and profiles hold the second biggest share in Lebanese aluminium imports of 21%. In 2013, our imports of bars, rods and profiles amounted to $42.45M while our exports were less than half at $16.38M. 44% were imported from the United Arab Emirates, 21% from Saudi Arabia and 19% from Egypt. The Syrian crisis and its subsequent spillovers on Lebanon have added another set of challenges for aluminium extruders. A lot of ink has been poured to convey that the Syrian crisis had a dampening effect on the Lebanese economy, and the aluminium industry is no exception. According to a market source, the Syrian crisis has disrupted trade routes and compelled Lebanese extruders to transport their raw material by sea instead of by land. Not only did this switch push costs upwards but it also delayed delivery times: the raw material we used to receive in one week we now receive in one month they said. With such changes in delivery times, aluminium extruders have been forced to increase their stocks of raw material, yet another factor pulling costs upwards.

16 The Lebanon Brief Page 16 of 18 The subdued economy has also weighed negatively on the construction sector which inevitably weakened demand for aluminium profiles. With costs on the up and with lower demand, the Lebanese aluminium extruders fell under the strains of a lower turnover. According to a market player, the big extruders in Lebanon usually recycle their scrap. This makes sense since the US Department of Energy affirms that the secondary aluminum production is far more energy efficient than the primary production. Therefore the exports of waste and scrap ought to emanate from the installers of aluminum. Export Destinations for Waste and Scrap, 2013 Export Destinations for Bars, rods and Profiles, 2013 Congo France 4% 4% 4% 5% 7% 7% 10% 29% 30% India Republic of Korea China Jordan United Kingdom Italy Netherlands UAE Others 1.0% 1.2% 1.0% 1.2% 1.5% 1.6% 6.9% 1.9% 2.4% 2.8% 3.0% 3.7% 4.7% 5.5% 5.7% 6.9% 15.8% 12.7% 11.1% 9.5% Netherlands Gabon Angola Zambia Ivory Coast Nigeria Saudi Arabia Guinea Liberia Mali Sierra Leone Mozambique Ghana Kuwait Burkina Faso Djibouti Equatorial Guinea Others Source: Lebanese Customs Lebanese Aluminum Industry The Installers According to market sources, the prices charged by installers have remained stable for many years now. However, in when the Lebanese economy was booming, demand was buoyant profit margins were wide. Now, demand has shrunk and competition has increased as all market players are after the scarce demand. According to a market player, when talking market shares one must dissect the market into high-end and medium end. Glassline and Alumco dominate 90% of the high-end segment whereas 90% of the medium-end segment is dominated by players such as Bifem-Paralu, Alubatec, Stal, Algeco, AG Najwal...etc. Two German brands are used in the high-end segment: Wicona and Shuco. The most commonly installed profiles in the medium-end are Technal, with an installation cost of $220/square meters and Sidem 2000 costing $140/square meter.

17 The Lebanon Brief Page 17 of 18 Overall, the aluminum industry in Lebanon shows signs of resilience and awareness to the challenges it is up against. Market players are fighting to weather the storm although they all agree that the government must do more to protect the Lebanese aluminum industry.

18 The Lebanon Brief Page 18 of 18 Research Department: David Achdjian Lana Saadeh Riwa Daou Mirna Chami Marwan Mikhael Your Investment Reference