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THE

LEBANON BRIEF

ISSUE 927

Week of 13-16 July, 2015

ECONOMIC RESEARCH DEPARTMENT

BLOMINVEST Bank Headquarters

Bab Idriss, Beirut, Lebanon

T (01) 991 784/2 F (+961) 1 991 732

[email protected]

www.blom.com.lb

S A L

ISSUE 927; Week of 13-16 July, 2015

S A L

TABLE OF CONTENT

FINANCIAL MARKETS 3

Equity Market 3

Foreign Exchange Market 5

Money & Treasury Bills Markets 5

Eurobond Market 6

ECONOMIC AND FINANCIAL NEWS 7

Transfers to EDL Down to $1.81B by November 2014 7

RAMCO: Sales Prices of Apartments under Construction in Beirut between $2,088 and $7,000 per

SQM 7

Lebanese Trade Deficit Narrowed to $5.83B by May 8

The Number of Payment Cards Rose by a Yearly 11.4% in 2014 9

CORPORATE DEVELOPMENTS 10

Solidere to Distribute Cash-Dividends and Stock-Dividends 10

Fransabank Redeemed Preferred Shares Series “A” 2008 10

FOCUS IN BRIEF 11

Steel Industry in Lebanon: 2014 Market Update 11

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.

The Lebanon Brief of 15


S A L

FINANCIAL MARKETS

Equity Market

Stock Market

61/07/2015 10/07/2015 % Change

BLOM Stock Index* 1,189.72 1,183.00 0.57%

Average Traded Volume 200,699 52,535 282.03%

Average Traded Value 1,375,911 754,167 82.44%

*22 January 1996 = 1000

The Beirut Stock Exchange (BSE) witnessed a pre-

holiday boost this past week mainly on account of

the strong performance in real estate shares

Solidere A and B after the company announced

earlier this week that it would distribute cash-

dividends and stock-dividends as of October this

year.

Accordingly, the BLOM Stock Index (BSI) ended the

week with a 0.57% upturn to 1,189.72 points. The

average traded volume and value grew from last

week’s 52,535 and $754,167 to 200,699 and

$1,375,911, respectively. Accordingly, the market

capitalization increased from $9.96B to $10.02B.

The BSI was however outperformed by the S&P Pan

Arab Composite Large-Mid-Cap Index, which

gained a weekly 1.13%, by the Morgan Stanley

Emerging Markets Index (MSCI) which gained a

weekly 1.98% and by the S&P AFE 40 Index which

gained a weekly 1.59%.

On the regional front, the top performing bourse

was the Kuwaiti bourse which rose by 2.23% and

was followed by the Dubai bourse which grew by

2.11% and the Abu Dhabi bourse which added a

weekly 1.81%. Muscat’s bourse closely followed

with a 1.80% weekly gain. Lesser gains of 1.08%

and 0.60% were seen on the Qatari and Saudi stock

markets. The Tunisian bourse was the only Arab

stock exchange to close in the red with a 0.62%

decline.

Back on the Beirut Stock Exchange, the only

banking stock to close in the green was BLOM’s

listed stock which ended the week with a 0.41%

upturn to $9.70. As for preferred shares, a poor

performance was registered across the board with

the BLOM Preferred Shares Index (BPSI) losing a

weekly 0.11% to 104.61 points. Bank Audi’s

preferred F and G shares each shed 0.10%, ending

the week at $100.50 and $100.10, respectively.

Bank Byblos’ preferred 08 and 09 shares also shed

0.50% and 0.10% to settle at $100.20 and $100.90,

respectively. Bank BEMO’s preferred 2013 shares

registered a 0.99% drop to $100.00.

Banking Sector

Mkt 61/07/2015 10/07/2015 % Change

BLOM (GDR) BSE $10.00 $10.00 0.00%

BLOM Listed BSE $9.70 $9.66 0.41%

BLOM (GDR) LSE $10.00 $10.00 0.00%

Audi (GDR) BSE $6.20 $6.20 0.00%

Audi Listed BSE $6.01 $6.01 0.00%

Audi (GDR) LSE $6.20 $6.20 0.00%

Byblos (C) BSE $1.61 $1.61 0.00%

Byblos (GDR) LSE $80.50 $80.50 0.00%

Bank of Beirut (C) BSE $18.40 $18.40 0.00%

BLC (C) BSE $1.70 $1.70 0.00%

Fransabank (B) OTC $27.00 $27.00 0.00%

BEMO (C) BSE $1.90 $1.90 0.00%

Mkt 61/07/2015 61/07/2015 % Change

Banks’ Preferred

Shares Index *

104.61 104.73 -0.11%

Audi Pref. E BSE $102.20 $102.20 0.00%

Audi Pref. F BSE $100.50 $100.60 -0.10%

Audi Pref. G BSE $100.10 $100.20 -0.10%

Audi Pref. H BSE $100.60 $100.60 0.00%

Byblos Preferred 08 BSE $100.20 $100.70 -0.50%

Byblos Preferred 09 BSE $100.90 $101.00 -0.10%

Bank of Beirut Pref. E BSE $25.50 $25.50 0.00%

Bank of Beirut Pref. I BSE $25.50 $25.50 0.00%

Bank of Beirut Pref. H BSE $25.50 $25.50 0.00%

BLOM Preferred 2011 BSE $10.15 $10.15 0.00%

BEMO Preferred 2013 BSE $100.00 $101.00 -0.99%

* 25 August 2006 = 100

1150

1170

1190

1210

1230

1250

Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15

BLOM Stock Index

HI: 1,236.40

LO: 1,159.48



S A L

Real Estate

Mkt 61/07/2015 61/07/2015 % Change

Solidere (A) BSE $11.91 $11.61 2.58%

Solidere (B) BSE $11.61 $11.35 2.29%

Solidere (GDR) LSE $11.60 $11.35 2.20%

The highest upturns in share price were seen in

the real estate sector with Solidere’s A and B

shares rising by a weekly 2.58% and 2.29% to

close at $11.91 and $11.61, respectively. On the

London Stock Exchange, Solidere shares added

2.20% to $11.60. Earlier this week, Solidere

announced the distribution of 1 Solidere A/B

share for every 50 Solidere shares of the same

class in addition to a cash dividend of $0.10 per

share.

Manufacturing Sector

Mkt 61/07/2015 61/07/2015 % Change

HOLCIM Liban BSE $15.20 $14.90 2.01%

Ciments Blancs (B) BSE $3.02 $3.02 0.00%

Ciments Blancs (N) BSE $2.75 $2.75 0.00%

In the industrial sector, HOLCIM shares gained a

weekly 2.01% to reach $15.20.

Whether the upward trend in real estate shares

will continue to boost the BSE after the Eid

holiday remains to be seen, especially if

considerations regarding the current political

inertia regain center stage.

Funds

Mkt 15/07/2015 09/07/2015 % Change

BLOM Cedars Balanced

Fund Tranche “A” -----

$7,559.73 $7,525.35 0.46%


Fund Tranche “B”

----- $4,995.47 $4,970.90 0.49%


Fund Tranche “C”

----- $5,741.67 $5,715.56 0.46%

BLOM Bond Fund ----- $9,507.13 $9,507.13 0.00%

Retail Sector

Mkt 16/07/2015 10/07/2015 % Change

RYMCO BSE $3.23 $3.23 0.00%

ABC (New) OTC $27.00 $27.00 0.00%

Tourism Sector

Mkt 16/07/2015 10/07/2015 % Change

Casino Du Liban OTC $323.00 $323.00 0.00%

SGHL OTC $7.00 $7.00 0.00%



S A L

Foreign Exchange Market

Lebanese Forex Market

11/07/2015 61/07/2015 %Change

Dollar / LP 1,508.00 1,509.00 -0.07%

Euro / LP 1,22.166 1,674.98 -2.02%

Swiss Franc / LP 1,757172 1,602.19 -1.66%

Yen / LP 12..7 12.35 -1.62%

Sterling / LP 2,.7.152 2,329.99 1.03%

NEER Index** .27186 164.55 0.77%

*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.

Demand for the dollar in the Lebanese Forex market

declined during the week as the Lebanese pound’s peg

against the dollar went from $/LP 1,507-1,511 with a mid-

price of $/LP 1,509 to $/LP 1,506–1,510 with a mid-price of

$/LP 1,508. Foreign assets (excluding gold) at the Central

Bank grew by a monthly 0.7% to reach $38.86B at the end

of June. As for the dollarization rate of private sector

deposits, it slid from 65.71% in December 2014 to 65.15%

by May.

Nominal Effective Exchange Rate (NEER)

The euro depreciated to its lowest level in 7 weeks against

the dollar by 2.02% to stand at €/$ 1.0887, on Thursday

16th of July. This came after the European Central Bank’s

Council left interest rates unchanged. Demand for gold fell

to a nine-month low after Federal Reserve Chair Janet

Yellen restated that U.S. interest rates will probably

increase this year. Accordingly, the price of gold dropped

from last week’s $1,162.86/ounce to $1,143.96/ounce

today at 15:30 pm, Beirut time.

By Thursday 16th of July, 2015, 12:30 pm Beirut time, the

dollar-pegged LP appreciated against the euro going from

€/LP 1,674.98 to €/LP 1,641.22. The Nominal effective

exchange Rate (NEER) increased by a weekly 0.77% to

165.82 points, bringing its year-to-date gains to 12.56%.

Money & Treasury Bills Markets

Money Market Rates

Treasury Yields

16/07/2015 10/07/2015 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

16/07/2015 10/07/2015 Change bps

Overnight Interbank 3.00% 2.75% 0

BDL 45-day CD 3.57% 3.57% 0

BDL 60-day CD 3.85% 3.85% 0

During the week ending July 2 2015, broad Money M3

increased by LP 223B ($147.76M), to reach LP 181,469B

($120.38B) with a 4.67% yearly growth and a 2.30% y-t-d

uptick. Similarly, M1 went up by LP 480.76B ($318.91M) due

to the increase in money in circulation by LP 311B ($206.30M)

and in demand deposits by LP 170B ($112.77M).

Total deposits (excluding demand deposits) went down by LP

258B ($171.15M), over the week, given the LP 200B decrease

in term and saving deposits and the $39M contraction in

deposits denominated in foreign currencies. Over the above

mentioned period, the broad money dollarization rate

experienced a down-tick from 58.15% on June 25, to 58.05%

on July 2. According to the Central Bank, the overnight

interbank rate dropped from 3.00% at the end of April 2015 to

2.75% at the end of May 2015.

In the TBs auction held on the 2nd of July 2015, the Ministry

of Finance raised LP 170.94B ($113.39M), through the

issuance of bills and notes maturing in 3M, 1Y and 5Y. The

highest demand was achieved on the 5Y notes, with a

79.65% share of total subscriptions, while the 3M and 1Y bills

captured the remaining 10.78% and 9.57%, respectively. The

3M and 1Y bills yielded 4.39% and 5.08%, while the coupon

rate of the 5Y notes stood at 6.74%. New subscriptions

exceeded maturing bills by LP 67.09B ($44.50M).

129

132

135

138

141

144

147

150

153

156

159

162

165

168




S A L

Eurobond Market

Eurobonds Index and Yield

61/07/2015 09/07/2015 Change Year to Date

BLOM Bond Index (BBI)* 107.078 107.195 -0.11% 0.94%

Weighted Yield** 5.50% 5.47% 2 48

Weighted Spread*** 384 386 -2 -46

*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

Maturity - Coupon

61/07/2015

Price*

09/07/2015

Price*

Weekly

Change%

61/07/2015

Yield

10/07/2015

Yield

Weekly

Change bps

2016, Nov - 4.750% 100.70 100.75 -0.05% 4.19% 4.15% 4

2017, Mar - 9.000% 107.5 107.59 -0.08% 4.32% 4.31% 1

2017, Oct - 5.000% 100.75 101.26 -0.50% 4.64% 4.40% 24

2018, Jun - 5.150% 101.923 101.48 0.44% 4.44% 4.60% -16

2018, Nov - 5.150% 100.88 101.22 -0.34% 4.86% 4.75% 11

2019, Apr - 5.500% 101.523 101.5 0.02% 5.05% 5.06% -1

2020, Mar - 6.375% 104.25 104.25 0.00% 5.33% 5.33% 0

2020, Apr - 5.800% 101.75 101.75 0.00% 5.38% 5.38% 0

2020, Jun - 6.150% 102.965 103.25 -0.28% 5.45% 5.39% 6

2021, Apr - 8.250% 113 113 0.00% 5.57% 5.58% -1

2022, Oct - 6.100% 101.63 101.75 -0.12% 5.82% 5.80% 2

2023, Jan - 6.000% 100.88 100.88 0.00% 5.85% 5.85% 0

2024, Dec - 7.000% 106.5 106.88 -0.36% 6.08% 6.03% 5

2025, Jun - 6.250% 100.75 101 -0.25% 6.09% 6.06% 3

2026, Nov - 6.600% 102.5 102.63 -0.13% 6.29% 6.27% 2

2027, Nov - 6.750% 103.5 103.63 -0.13% 6.34% 6.32% 2

Mid Prices ; BLOMINVEST bank

Demand for Lebanese Eurobonds slid over the past week as shown by the 0.11% decrease in the BLOM Bond Index

(BBI) to 107.08 points. However, Lebanon’s BBI still managed to outperform the JP Morgan Emerging Markets’ Bond

Index which shed a weekly 0.13% to settle at 674.73 points.

The yields on the Lebanese Eurobonds maturing in 5 Years and 10 Years rose slightly from last week’s 5.18% and

6.06% to 5.19% and 6.08%, respectively. As for yields on the 5 Year and 10 Year US Treasuries they increased from

last week’s 1.58% and 2.32% to 1.63% and 2.36%, respectively. The higher yields point to a lower demand for the

safe-haven US treasuries as the Federal Reserve Chair Janet Yellen stated that if the economy meets the Federal

Reserve’s expectations, a hike in interest rates later this year is still on the agenda. Accordingly the spread between

the yields on the 5Y and 10Y Lebanese Eurobonds and their US comparable narrowed from 360 basis points (bps)

and 374 bps last week to 356 bps and 372 bps this week.

Lebanon and Turkey’s 5 Year (5Y) Credit Default Swaps (CDS) steadied at 355-380 bps and 219-222 bps, respectively.

Meanwhile, Brazil’s 5Y CDS narrowed from 263-266 bps to 260-263 bps as did Saudi Arabia’s CDS quotes from 57-65

bps to 55-60 bps. As for Dubai’s 5Y CDS quotes, they went from last week’s 174-194 bps to 179-188 bps.

4.50%

5.00%

5.50%

6.00%


Weighted Effective Yield of Eurobonds



S A L

ECONOMIC AND FINANCIAL NEWS

Contribution of EDL in the Total Oil Bill, January

to November of each year

Source: Ministry of Finance

Average Prices on the First Floor in Projects

under Construction in Selected Beirut

Neighborhoods

Neighborhood Price per SQM

Foch / Allenby $7,000

Minet el Hosn $6,914

Serail $6,250

Rizk Tower $6,000

Sursock $5,250

Saifi $5,000

Ain el Tineh $4,888

Verdun $4,731

Hamra $4,308

Monnot $4,200

Gemmayze $4,192

Mar Mikhael $4,059

Sioufi $3,456

Badaro $3,314

Zokak el Blatt $3,245

Mar Elias $2,939

Barbir $2,525

Fassouh $2,913

Barbour $2,346

Noueiri $2,088

Source: RAMCO

Transfers to EDL Down to $1.81B by November 2014

According to the Ministry of Finance, transfers to EDL dropped by a

yearly 3.6% to reach $1.81B up to November 2014. Excluding EDL’s

debt service, the reimbursements for the purchase of gas and fuel

from the two suppliers KPC and Sonatrach shrunk by a yearly 2.5%

to $1.79B up to November 2014 as the quantity of imported gas oil

during the consumption periods of May 2012-June 2013 and May

2013-June 2014 shrunk by 8.77%. EDL’s contribution to the total oil

bill remained marginal, standing at 3.1% up to November 2014

compared to 2.7% up to November 2013 and 3.8% up to

November 2012. Out of the government’s primary expenditures of

$8.38B up to November 2014, EDL transfers represented a share of

21.6% compared to a share of 21.3% up to November 2013.

RAMCO: Sales Prices of Apartments under

Construction in Beirut between $2,088 and $7,000 per

SQM

In their latest publication, real estate advisers RAMCO, surveyed

346 buildings under construction across Municipal Beirut and

revealed the average asking sales prices of apartments on the first

floor in 71 neighborhoods in the capital. The average sales prices of

apartments under construction in different neighborhoods of Beirut

vary between $2,088 and $7,000 per square meter (SQM). There is

no neighborhood in the capital that revealed prices below $2,000

per SQM. The highest prices were registered at the seafront of the

capital Beirut. From Ain el Mreisseh to Ramlet el Baida, average

prices vary between $4,583 and $6,925 per SQM. In the Beirut

Central District (BCD), averages on the first floor vary between

$6,000 and $7,000 SQM. RAMCO notes that prices in the BCD have

dropped over the past 12 months and fell compared to last year

since there are no projects currently under construction around the

Bay of St. Georges. The highest averages are located in the area of

Foch-Allenby, which enjoys views of the Port of Beirut. The lowest

prices were found in the central neighborhoods of Beirut, between

Bachoura and Tarik el Jdideh, and vary between $2,088 and $2,400

per SQM.

12%

6.00%

3.80% 2.70% 3.10%

2010 2011 2012 2013 2014



S A L

Lebanon’s Trade Balance Figures, By May of each

year, In Thousands of USD

Source: Lebanese Customs

Lebanese Trade Deficit Narrowed to $5.83B by May

According to Lebanese customs, Lebanon’s trade deficit shrunk by

a yearly 21% to reach $5.83B by May 2015. The smaller deficit

came about as both imports and exports posted yearly declines of

19% and 8% to reach $7.1B and $1.27B in the first five months of

2015, respectively. The exports to imports ratio improved from 16%

by May 2014 to 18% by May 2015.

By May 2015, the top import categories were “mineral products”

with a share of 16.7% in the total value of imports, “machinery and

electrical instruments” with a share of 11.8%, “products of the

chemical or allied industries” with a stake of 11.5%, “vehicles,

aircraft, vessels and transport equipment” with a share of 9% and

“prepared foodstuffs, beverages, tobacco” with a share of 7.8%.

By May 2015, imports of mineral products slumped by 43% year-

on-year (y-o-y) to $1.19B, imports of machinery and electrical

instruments fell by 15% y-o-y to $837.34M, imports of products of

the chemical or allied industries dropped by 5% y-o-y to $818.14M

and imports of prepared foodstuffs, beverages and tobacco slid by

6% y-o-y to $550.35M. The only exception to the downward trend

were the imports of vehicles, aircrafts, vessels and transport

equipment which grew by 7% y-o-y to reach $636.19M by May

2015.

In the first five months of 2015, the top export categories were

“prepared foodstuffs, beverages, tobacco” with a share of 16.17%

in the total value of exports, “pearls, precious stones and metals”

with a share of 16%, “products of the chemical or allied industries”

with a share of 14.07%, “machinery and electrical instruments” with

a share of 13.83% and “base metals and articles of base metals”

with a share of 10.81%.

The exports of prepared foodstuffs, beverages, and tobacco fell by

6.65% y-o-y to $205.67M, the exports of pearls, precious stones

and metals declined by 21.70% y-o-y to $203.47M, the exports of

machinery and electrical instruments shrunk by 6.77% y-o-y to

$175.9M and exports of base metals and articles of base metals

contracted by 15.45% to $137.51M.

By May 2015, the top import destinations were China, Italy,

Germany and France with stakes of 11.6%, 7%, 6.6% and 5.9% in

total imports.

As for the top markets for Lebanese exports by May 2015, they

were Saudi Arabia, the UAE, Iraq, South Africa and Syria with

respective share of 13%, 11%, 8%, 7% and 6%, respectively.

(5,083,788)

(6,541,602)

(7,195,682) (7,332,676)

(5,827,556)

7,657,040

8,368,525

9,159,716

8,712,917

7,099,234

2,573,252

1,826,923 1,964,034

1,380,241

1,271,678

2011 2012 2013 2014 2015

Cumulative Deficit Cumulative Imports

Cumulative Exports



S A L

Total Number of Outstanding Payment Cards and

Non Residents’ Share

Source: BDL

The Number of Payment Cards Rose by a Yearly 11.4%

in 2014

Tourist spending in Lebanon grew 7% y-o-y in the first six months

of 2015, according to “Global Blue”. The improvement of tourists’

spending in the first half of the year was mainly the result of the

relatively stable security environment, comparing to other countries

in the region, and the successful skiing season.

With respect to demographics, Arab tourists continued to capture

the largest share of spending in Lebanon, led by Saudi Arabian

residents with a stake of 16%, and followed by tourists from the

UAE and Egypt with 14% and 7% respectively. In fact, spending by

tourists from Jordan saw the highest growth of 35% y-o-y in H1

2015, which was expected following the 7% yearly increase of

Jordanian tourists (second largest among Arab countries) by May

reaching 28,802 visitors. In contrast, those coming from Syria

underwent, over the same period, the heaviest spending decline of

24% y-o-y, due to the ongoing political turbulence in their country.

As for the number of refund transactions, it revealed a 1% yearly

uptick in H1 2015 despite the ongoing regional unrest and the

worsening land-border travel through the war-ridden Syria. In

details, the yearly evolution in the number of refund transactions

during H1 2015, mainly resulted from the respective yearly rises of

23%, 21%, and 13% in the number of refund transactions from

tourists coming from Qatar, Jordan and Iraq.

In terms of spending by category, fashion and clothing accounted

for 72% of total items purchased by tourists, watches and jewelry

captured 15%, home & garden items and department stores took

respective shares of 4% and 3% each. With respect to point of sale

distribution, Beirut’s shopping districts continued to attract the

most tourists, accounting for 83% of total spending, followed by

Metn (11% of total spending) and Baabda (3% of total spending).

However, spending in Keserwan revealed the biggest improvement

of 97% y-o-y in H1 2015 and was trailed by the 8% yearly rise in

Beirut. In contrast, Mt Lebanon saw a yearly decline of 10% by

June 2015.

0%

1%

2%

3%

4%

5%

6%

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

Number of Outstanding Payment Cards

Share of Non-Residents (In %)



S A L

CORPORATE DEVELOPMENTS

Unconsolidated FY 2014 Results ($M)

Net Income 96.90

Total Assets 2,861

Shareholder's Equity 1,975

Source: Solidere

Fransabank Q1 2015 Financials ($M)

Net Income 43

Total Assets 18,576

Deposits from Customers 13,817

Loans to Customers 5,658

Total Equity 1,887

Source: Midclear

Solidere to Distribute Cash-Dividends and Stock-

Dividends

During its annual ordinary general assembly held on July 13th, 2015,

Solidere declared the distribution of cash-dividends and stock-

dividends, which, combined, are equivalent to a distribution of

$0.33/share.

The total dividend distribution of $52.88M is to be distributed in the

form of one “A” or “B” share for every 50 shares of the same class,

in addition to a cash dividend of $0.10/share. The ex-dividend date,

after which new shareholders no longer receive the announced

dividends, was set for Wednesday, July 29th, 2015 while the record

date was set for Friday, 31st of July, 2015. The dividends are subject

to a 5% tax, and will be distributed as of the 12th of Ocotber, 2015.

In addition, a new board of directors was elected during the

assembly for the coming three years. Dr. Nasser Chammaa’ was

elected president and general manager of the board, while Mr. Fadi

Nabil Al Bustani and Mr. Maher Youssef Baydoun were elected as

vice presidents, with Mr. Roufael Sabbagha elected as secretary

general of the board. The board is also comprised of Mssrs. Maher

Al Daouk, Raja Salameh, Bassil Yared, Makram Abboud, Mounir

Doueidy, Joseph Assaily and Pierre Kamel.

Fransabank Redeemed Preferred Shares Series “A”

2008

According to Midclear, Fransabank completed the redemption of

500,000 non-listed preferred “A” shares 2008 on July 15th after full

payments were made to their shareholders.

The redemption was approved by the extraordinary general

assembly of Fransabank shareholders on the 18th of June, 2015

and by BDL on the 8th of July, 2015. These shares were issued on

March 28th, 2008, with a nominal value of L.L 20,000.



S A L

FOCUS IN BRIEF

Steel Industry in Lebanon: 2014 Market Update

The steel industry is the biggest industry in the world after oil and gas, with an estimated global turnover of $900B. Steel is

the most widely exploited and recycled metal on earth. Its various forms and alloys offer different properties to meet a wide

range of applications, such as construction, transport, energy, infrastructure, packaging and machinery. It is also the main

substance used in providing renewable energy such as thermal, solar and tidal power.

Before the introduction of the Bessemer process and other modern production techniques, steel was expensive and was

only used where no cheaper alternative existed, particularly it was used for the cutting edge of knives, razors, swords, and

other items where a hard, sharp edge was needed. With the advent of speedier and more efficient production methods,

steel has become easier to obtain and much cheaper. Today, the housing and construction sector is the largest consumer

of steel, using around 50% of steel produced. Because of the critical role played by steel in infrastructural and overall

economic development, the steel industry is considered an indicator of economic progress.

World Steel Production (M tons)

Source: World Steel Association

According to World Steel Association, Steel production was growing at an average annual rate of 8.5% between 2004 and

2007. This was mostly due to the economic growth across the globe that spurred a rise in construction activity. The

financial crisis pushed this rate down to -8% in 2009. Following the start of global recovery in 2010, steel production

maintained its uptrend, standing at 1.67B tons in 2014, a 3.03% increase from 1.61B tons of 2013. 49.4% of total world

production in 2014 came from China, 6.6% from Japan, and 5.3% from the United States. In terms of steel use per capita,

South Korea ranked the first with 1.12 tons/capita, followed by Taiwan and Czech Republic with 837.1 kg/capita and

582.4kg/capita, respectively.

9%

8%

9%

8%

0%

-8%

16%

7%

1%

3%

4%

0

200

400

600

800

1000

1200

1400

1600

1800

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

-10%

-5%

0%

5%

10%

15%

20%

Steel Production Annual Growth Rate (in %)



S A L

The size of the steel market in Lebanon is around $150M, including steel for industrial purposes. The top market players are

DEMCO Steel (24-28% of total volume of steel imported), Al Moussawi Trading Company for Steel and Building Material

(20-21% of total volume of steel imported), Société Libanaise pour Les Métaux, Société Jean Yared et Fils , and Zeenni Steel

Industries (mostly steel for industrial purposes).

There are no barriers to enter the Lebanese steel market. However inspection is being done at the port to make sure that

the imported material is up to required standards.

Steel imports are subject to custom duties worth 5% of total value. Nevertheless, the trade agreement signed between the

European Union (EU) and Lebanon allowed steel imports from EU to be exempted from these customs.

The cost of steel shipment, at the end of 2014 was $45/ton if importing from China and $24/ton from Europe. In June 2015,

and due to the decline in oil prices, these costs dropped to $30-$28/ton if coming from China and $18/ton from Europe.

Lebanon does not produce steel for 2 reasons. First there is no iron ore in Lebanon, which is the main component of steel.

Moreover, the high electricity costs would put Lebanese producers at a competitive disadvantage against other steel

makers in the region. However, a company in the North used to produce steel billets and sell it to Syria. However, due to

the situation in Syria and its depreciating currency production stopped and the firm closed.

The main drivers of the steel industry in Lebanon are construction, generators, ducts for air conditioning systems, and

hangars. Demand for steel in Lebanon is fulfilled through imports, owing to the country’s limited capacity for domestic

production. 70% of steel demanded goes to construction while 30% to industrial uses.

Steel importers witnessed a plunge in the quantity demanded, from 360,000 tons in 2013 to 260,000 tons in 2014. They also

observed a change in the quality of demanded steel. Better quality steel with a higher resistance to earthquakes is being

demanded more in 2014 compared to previous years.

The volume of steel imports remained on the rise for more than 4 years, growing at a compounded annual growth rate

(CAGR) of 3.13%. The volume stood at 1.44M tons in 2014, recording a marginal 0.95% increase compared to 2013, after

posting yearly rises of 5.97% and 5.74% in 2012 and 2013, respectively.

Lebanese Steel Imports

Source: Customs

In terms of value, it has been declining, recording annual decreases of 2.01% and 2.54% in 2012 and 2013, respectively. In

2014, the value of steel imports dropped 4.82% to $879.37M.

The drop in the value of steel imports can be attributed to the price/ton of steel, which has been showing a downtrend.

According to Al Moussawi Trading Company for Steel and Building Material, the price of steel for construction plunged from

$700 in 2013 to $400 in 2015, due to the emergence of China as a steel producer and exporter. China has low labor costs,

imports iron ore from Africa at a low price, and benefits from government subsidies. All this, in addition to its economic

crisis that led it to decrease its demand for steel, allowed the Chinese steel industry to burgeon and dump its production in

the international market.

1.27

1.35

1.42

1.44 967.41

947.95

923.89

879.37

1.15

1.20

1.25

1.30

1.35

1.40

1.45

820.00

840.00

860.00

880.00

900.00

920.00

940.00

960.00

980.00

2011 2012 2013 2014

Volume (M tons) Value ($M)



S A L

Export Price of 25mm Chinese Steel Reinforcing Bar (Shanghai)

Source: Bloomberg

According to Cesar Pharaon, sales director at DEMCO Steel, the international price of steel is mostly impacted by iron ore,

as it is the major component of steel. It is affected marginally by the price of oil, since steel production is energy intensive.

However, since China is the main producer of steel and uses coal and gas in its production process, oil price does not have

a major effect on steel price.

Moreover, Pharaon noted that the price of steel and its demand are directly related: when the price of steel rises,

consumers rush and buy more steel, fearing that it will become more expensive in the future, when the price falls

consumers expect it to fall further and buy less.

This led Lebanon to import more steel from China, where the share of steel imports from China grew from 34.77% (of

1.42M tons) in 2013, to 67.88% (of 1.44M tons) in 2014. Ukraine ranked second with a stake of 13.28% of total steel

imports, followed by Turkey with a 7.12% share.

Nevertheless, with Lebanese steel importers signing contracts to purchase steel from China, the 3-month lag between

purchase and delivery raises the risk born by Lebanon’s importers, encountering downward price movements of the

commodity.

Lebanon imports 3 main types of steel: 75% “Bars and Rods”, 20% “Flat-rolled Products”, and 3% “Tubes and Pipes”.

Average Price per Ton ($)

Source: Customs

$250

$300

$350

$400

$450

$500

$550

$600

$650

$700

$750

31/01/2011 31/01/2012 31/01/2013 31/01/2014 31/01/2015

899.19

826.83 771.71

771.19 692.26

642.55 585.90

538.09

1,181.80

1,240.87

1,269.42 1,377.66

2011 2012 2013 2014

Flat Steel Bars and Rods Tubes and Pipes



S A L

“Bars and Rods” are used in construction to buttress concrete structures. Their volume inched up by a yearly 2.87% in

2014, lower than the 7.46% and 8.55% annual rises recorded respectively in 2012 and 2013. This might be due to the

improvement in the real estate sector, where the number of transactions witnessed a 2.30% progress to 70,792

transactions in 2014.

“Flat-rolled Product”, which are used in machinery construction and packaging, saw their volume fall by 1.56% in 2014,

compared to growths of 3.31% in 2012 and 5.44% in 2013. This was due to the stagnating industrial market, as shown by

the decrease in industrial exports from $3.38B in 2013 to $3.15B in 2014.

“Tubes and Pipes” are a major component in plumbing systems and are used as binders in building construction. Their

volume increased by 2.46% y-o-y in 2014, after annually declining by 23.68% in 2012 and by 4.93% in 2013.

The slowdown witnessed in the construction sector and developers’ preference for smaller apartments caused steel

demand to decline, leading steel importers to pile stocks, decrease their prices, and sell their goods at a loss.

Worth mentioning that the Syrian war had conflicting impacts on different steel importers. Some claim that they benefited

from the war due to less competition, as steel produced in Syria is cheaper and of better quality. Others were negatively

impacted, since this blocked their exporting routes to Iraq and Jordan.

Looking at steel exports, the volume decreased from 35,982 tons in 2011 to 32,676 tons in 2012 and 15,518 tons in 2013.

However, the volume more than doubled in 2014 (58.68% y-o-y increase) to stand at 24,624 tons. This was mostly due to

higher exports to Syria, the main destination of Lebanese steel exports, that grew from 2,585 tons in 2013 to 4,970 tons in

2014.

Lebanese Steel Exports

Source: Customs

Looking ahead, the international price of steel is expected to continue declining unless the Chinese economy in specific and

the global economy in general recover. Locally, the steel market would improve if construction activity enhances. This in

turn depends on the Lebanese political and security situations. To protect themselves, steel importers are trying to diversify,

undertaking activities outside their scope of work. For instance, DEMCO Steel widened its scope of business to include

overseas trading and real estate developments.

35,982

32,676

15,518

24,624

32.67

31.19

21.32

19.74

10.00

15.00

20.00

25.00

30.00

35.00

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2011 2012 2013 2014

Volume (tons) Value ($M)

The Lebanon Brief

of 15

Your Investment Reference

S A L

Research Department:

Wael Khoury [email protected]

Lana Saadeh [email protected]

Riwa Daou [email protected]

Mirna Chami [email protected]

Marwan Mikhael [email protected]

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the lebanon brief - blominvest · the lebanon brief page 3 of 15 issue 927; week of 13-16 july,...

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