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Your Investment Reference

THE

LEBANON BRIEF

ISSUE 964

Week of April 11 – April 16, 2016

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

The Lebanon Brief ISSUE 964 Week of April 11- 11, 2016

S A L

TABLE OF CONTENT

FINANCIAL MARKETS 1

Equity Market 1

Foreign Exchange Market 3

Money & Treasury Bills Markets 3

Eurobond Market 4

ECONOMIC NEWS 5

Gross Public Debt Rose to $71.21B in February 2016 5

Lebanon’s Commercial Banks’ Assets Ticked up by 0.32% (Y-t-D) by February 2016 5

Tourists’ Spending Fell 12% (Y-o-Y) by Q1 2016 6

Kafalat Guarantees in Q1 2016 Reflect a Partial Recovery in Investment Sentiment 7

Number of Registered Cars Improved 6.72% by March 8

The IMF Revises Global Growth Downwards to a Modest 3.2% for 2016 9

CORPORATE DEVELOPMENTS 10

BLOM Bank Announces Dividend Distribution for 2015 10

Bank Audi Declared Dividends for 2015 11

FOCUS IN BRIEF 12

Public-Private Partnership in Lebanon 12

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.

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S A L

FINANCIAL MARKETS

Equity Market

Stock Market

15/04/2016 08/04/2016 % Change

BLOM Stock Index* 1,173.08 1,184.73 -0.98%

Average Traded Volume 178,851 81,366 119.81%

Average Traded Value 1,672,372 691,984 141.68%

*22 January 1996 = 1000

The Beirut Stock Exchange (BSE) underwent a

week of profit taking on Audi stocks, sending the

BLOM Stock Index (BSI) 0.98% lower following

five weeks of improving performance. Accordingly,

the index ended the week at 1,173.08 points,

tightening its year-to-date gain to 0.30%. As for

the market capitalization, it decreased by $96.07M

to $9.68B.

Cross Trades over Byblos common stock and

Solidere class “B” this week lifted the average

volume of traded shares from $81,366 worth

$691,984 to 178,851 shares valued at $1.67M.

Most of the regional indices revealed progressing

performance, beating the Lebanese equity

benchmark by the end of this week. In details, the

S&P Pan Arab Composite Large-Mid-Cap Index, the

S&P AFE 40 and the Morgan Stanley Emerging

Markets Index (MSCI) improved by weekly 2.70%,

2.68% and 4.47%, respectively.

The continuous improvement in oil prices that

approached the $45-mark this week was mainly

behind the positive weekly results of most Arab

stock markets, mainly those of oil exporting

countries. Dubai and Abu Dhabi’s led the week’s

gains revealing respective rises of 4.75% and

4.21%. Saudi Arabia followed with a 4.01% weekly

progress, while Omani and Kuwaiti equities added

2.69% and 1.34%, respectively.

Besides the BSE scoring the worst performance

this week, profit- taking was also the main reason

behind the losses occurred on the Jordanian,

Tunisian and Egyptian stock exchanges, which

respectively registered weekly declines of 0.97%,

0.76%, and 0.21%.

On the Beirut Stock Exchange, the banking sector

took 68.18% of total traded value, while the real

estate and industrial sectors contributed for the

remaining 30.74% and 1.07% shares, respectively.

When it comes to the banking sector, BLOM

shares saw a positive performance this week

ahead of the dividend distribution that should

occur next week. The bank’s listed and Global

Depository Receipts (GDR) added 1.30% and

3.01% to $10.94 and $10.61, respectively. In

contrast, Audi’s shares experienced weekly drops,

Banking Sector

Mkt 15/04/2016 08/04/2016

%

Change

BLOM (GDR) BSE $10.94 $10.80 1.30%

BLOM Listed BSE $10.61 $10.30 3.01%

BLOM (GDR) LSE $10.80 $10.90 -0.92%

Audi (GDR) BSE $5.81 $6.00 -3.17%

Audi Listed BSE $5.85 $6.25 -6.40%

Audi (GDR) LSE $5.85 $6.09 -3.94%

Byblos (C) BSE $1.69 $1.70 -0.59%

Byblos (GDR) LSE $75.00 $75.00 0.00%

Bank of Beirut (C) BSE $18.80 $18.80 0.00%

BLC (C) BSE $1.69 $1.69 0.00%

Fransabank (B) OTC $27.00 $27.00 0.00%

BEMO (C) BSE $1.75 $1.75 0.00%

Mkt 15/04/2016 08/04/2016 % Change

Banks’ Preferred

Shares Index *

106.22 106.36 -0.13%

Audi Pref. F BSE $100.10 $102.70 -2.53%

Audi Pref. G BSE $100.00 $101.20 -1.19%

Audi Pref. H BSE $101.50 $101.50 0.00%

Byblos Preferred 08 BSE $102.50 $102.50 0.00%

Byblos Preferred 09 BSE $103.10 $101.40 1.68%

Bank of Beirut Pref. I BSE $26.50 $26.50 0.00%

Bank of Beirut Pref. H BSE $26.50 $26.50 0.00%

Bank of Beirut Pref. J BSE $26.50 $26.50 0.00%

BLOM Preferred 2011 BSE $10.15 $10.15 0.00%

BEMO Preferred 2013 BSE $100.50 $100.00 0.50%

* 25 August 2006 = 100

1100

1120

1140

1160

1180

1200

1220

1240

Apr-15 Jul-15 Oct-15 Jan-16 Apr-16

BLOM Stock Index

HI: 1,236.40

LO: 1,108.49

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S A L

Real Estate

Mkt 15/04/2016 08/04/2016 % Change

Solidere (A) BSE $10.00 $9.98 0.20%

Solidere (B) BSE $9.90 $10.00 -1.00%

Solidere (GDR) LSE $10.00 $10.10 -0.99%

bearing in mind that the bank’s dividends’

distribution for 2015 took place on Thursday.

In this context, Audi listed and GDR shares

decreased by 3.17% and 6.40% to settle at $5.81

and $5.85, respectively. Similarly, Byblos listed

shares witnessed a 0.59% weekly slip to $1.69.

Manufacturing Sector

Mkt 15/04/2016 08/04/2016

%

Change

HOLCIM Liban BSE $14.36 $14.36 0.00%

Ciments Blancs (B) BSE $3.00 $3.00 0.00%

Ciments Blancs (N) BSE $3.10 $3.10 0.00%

Mixed performance characterized the Lebanese

preferred shares over the week. However, the

BLOM Preferred Shares Index (BPSI) settled at

106.22 points by the end of the week, revealing

a 0.13% weekly drop. In fact, the weekly

increases in Byblos Preferred 09 shares and BLC

preferred “A” shares failed to counterbalance the

tumbling prices of most of Bank Audi’s preferred

shares. In details, Byblos preferred shares class

09 added 1.68% to $103.10, while BLC preferred

“A” class rose by 0.50% to $100.50. As for Bank

Audi, the preferred shares class “F” and “G”

respectively lost 2.53% and 1.19% to $100.10

and $100.00. Worth mentioning that BLOM

Preferred 11 shares ceased trading on Friday to

avoid the overlap caused by their record date

and payment date falling on the same day

(check the corporate story, page 10).

Retail Sector

Mkt 15/04/2016 08/04/2016 %

Change

RYMCO BSE $3.23 $3.23 0.00%

ABC (New) OTC $27.00 $27.00 0.00%

In the real estate sector, Solidere stocks also

witnessed disparate performance on the Beirut

Stock Exchange (BSE) with the “A” class adding

0.20% to $10.00 and the class “B” losing 1.00%

to $9.90.

On the London stock Exchange (LSE), 3 out of

the 4 listed GDRs ended the week in the red. In

details, Solidere GDRs decreased by 0.99% to

$10.00. In addition, the GDRs of BLOM and Audi

lost 0.92% and 3.94% to $10.80 and $5.85,

respectively.

Profit taking appetite is expected to continue in

the coming week on forthcoming dividend

distributions of BLOM and Solidere. However,

the wave of profit taking is likely to be replaced

by a wait and see approach ahead of Easter

holidays.

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S A L

Money & Treasury Bills Markets

Money Market Rates

Treasury Yields

15/04/2016 08/04/2016 Change bps

3-M TB yield 4.39% 4.39% 0

6-M TB yield 4.87% 4.87% 0

12-M TB yield 5.08% 5.08% 0

24-M TB coupon 5.84% 5.84% 0

36-M TB coupon 6.50% 6.50% 0

60-M TB coupon 6.74% 6.74% 0

15/04/2016 08/04/2016 Change bps

Overnight Interbank 3.00% 3.00% 0

BDL 45-day CD 3.57% 3.57% 0

BDL 60-day CD 3.85% 3.85% 0

During the week ending March 24, broad Money M3 grew

by LP 293B ($194.36M) to reach LP 187,238B ($124.20B).

M3 registered a 5.92% yearly growth and a 0.34% year-to-

date uptick. Similarly, M1 widened by LP 327B ($216.92M)

over the mentioned period, due to the increase in demand

deposits by LP 310B ($205.64M) and in money in circulation

by LP 17B ($11.28M). Total deposits (excluding demand

deposits) decreased by LP 34B ($22.55M) during the week,

given the $73M decline in deposits denominated in foreign

currencies and the LP 76B growth in term and saving

deposits. Over the above mentioned period, the broad

money dollarization rate went down from 58.02% on the

17th of March to 57.87% on the 24th of March. According to

the Central Bank, the overnight interbank rate dropped from

3.25% end of December 2015 to 3% in January 2016.

In the TBs auction held on the 7th

of April, 2016, the Ministry

of Finance (MoF) raised LP 114.33B ($75.84M), through the

issuance of bills maturing in 3M and 1Y and notes maturing

in 5Y. The highest demand was achieved on the 5Y notes,

which grasped a 49.25% share of total subscriptions, while

the 3M bills and 1Y bills captured the remaining shares of

2.63% and 48.12%, respectively. The discount rates on the

3M bills and 1Y bills stood at 4.39% and 5.08%,

respectively. Meanwhile the coupon rate on the 5Y notes

registered 6.74%. New subscriptions exceeded existing

maturities by LP 21.05B ($13.96M).

Foreign Exchange Market

Lebanese Forex Market

51/04/2016 08/04/2016 % Change

Euro / Dollar 1.1265 1.1386 -1.06%

Sterling / Dollar 1.4166 1.4106 0.43%

Dollar / Swiss Franc 0.9675 0.9563 1.17%

Dollar / Yen 109.40 108.92 0.44%

NEER Index** 166.66 166.28 0.23%

*Close of GMT 09:00+2

**Nominal Effective Exchange Rate; Base Year Jan 2006=100

**The unadjusted weighted average value of a country’s currency relative to all major

currencies being traded within a pool of currencies. The NEER represents the approximate

relative price a consumer will pay for an imported good.

Nominal Effective Exchange Rate (NEER)

Demand for the Dollar in the Lebanese Forex Market

remained unchanged over the past week as the value of

the dollar steadied at $/LP 1,513.75-1,514.25 with a mid-

price of $/LP 1,514.

Foreign assets (excluding gold) of the Central Bank

decreased by 1.56% by the end of March, to $36.59B. The

dollarization ratio of private sector deposits fell from

64.88% in December 2015 to 64.69% in February 2016.

By Friday 15th of April, 2016, 12:25 pm Beirut time, the

euro depreciated against the dollar-pegged LP as the

exchange rate down slid by 1.06%, over the last week,

from €/LP 1,716.44 to €/LP 1,698.20. As for the Nominal

effective Exchange Rate (NEER), it added a weekly 0.23%

to 166.66 points, the equivalent of a 1.03% year-to-date

decrease.

The euro also fell against the dollar as the exchange rate

dropped from last week’s €/$ 1.13 66 to €/$ 1.1265 this

week. The dollar got a boost from jobless claims falling to

their lowest level since 1973 and from the consumer price

index rising only by 0.1% in March.

With a stronger dollar, gold prices fell from $1,232/ounce

last week to $1,230/ounce at 12:30 Beirut time this Friday.

155

158

161

164

167

170

173

Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16

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S A L

Eurobond Market

Eurobonds Index and Yield

14/04/2016 07/04/2016 Change Year to Date

BLOM Bond Index (BBI)* 103.745 103.664 0.078% -0.35%

Weighted Yield** 6.23% 6.22% 1 121

Weighted Spread*** 491 501 -10 61

*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

14/04/2016

Price*

07/04/2016

Price*

Weekly

Change%

14/04/2016

Yield

07/04/2016

Yield

Weekly

Change bps

2017, Oct - 5.000% 99.75 99.75 0.00% 5.18% 5.17% 0

2018, Jun - 5.150% 99.75 99.63 0.12% 5.27% 5.33% -6

2018, Nov - 5.150% 99.5 99.38 0.12% 5.36% 5.41% -5

2019, Apr - 5.500% 99.63 99.38 0.25% 5.63% 5.72% -9

2020, Mar - 6.375% 101.25 100.88 0.37% 6.01% 6.12% -11

2020, Apr - 5.800% 99.25 98.88 0.37% 6.01% 6.12% -10

2021, Apr - 8.250% 109 108.63 0.34% 6.13% 6.22% -9

2022, Oct - 6.100% 98.88 98.5 0.39% 6.31% 6.39% -7

2023, Jan - 6.000% 98 97.63 0.38% 6.37% 6.43% -7

2024, Dec - 7.000% 102.88 102.65 0.22% 6.56% 6.59% -4

2025, Feb - 6.200% 97.5 97.25 0.26% 6.58% 6.61% -4

2026, Nov - 6.600% 98.5 98.38 0.12% 6.80% 6.82% -2

2027, Nov - 6.750% 99.5 99.38 0.12% 6.81% 6.83% -1

2030, Feb - 6.650% 97.5 97.38 0.12% 6.93% 6.95% -1

Mid Prices ; BLOMINVEST bank

Demand for Lebanese Eurobonds increased over the week, as revealed by the BLOM Bond Index (BBI) that added 0.08% over the

week to 103.75 points. Hence, the Lebanese gauge could not outperform the JP Morgan Emerging Markets’ Bond Index, which

increased by a faster pace of 1.53% to 715.47 points.

The higher demand for medium- and long-term maturities pushed the yields on the 5Y and 10Y Lebanese Eurobonds down by 7

basis points (bps) and 1 bps to 6.14% and 6.72%, respectively.

Worth noting, the Lebanese government announced today a coming Eurobonds issuance in USD, for 2 maturities, April 2024 and

April 2031. The yield on the 8Y notes ranges between 6.60%- 6.75%, while that of the 15Y notes is between 6.95%-7.10%. The lead

managers of this issuance are BLOM Bank S.A.L, Byblos Bank S.A.L, and Deutsche Bank.

In contrast, demand for US treasuries declined over the week. Investors moved towards risky assets as oil prices increased and as

they expect that the Federal Reserve will implement 2 interest rate hikes this year, the first of which is forecasted to occur in June.

Hence, the 5Y and 10Y yields in the US increased to 1.26% and 1.80% from last week’s rates of 1.14% and 1.70%, respectively.

Therefore, the spread between the yields on the 5Y and 10Y Lebanese Eurobonds and their US comparable narrowed by 19 bps

and 11 bps to end the week at 488 bps and 492 bps, respectively.

5Y CDS 15/04/2016 08/04/2016

Lebanon 455 464

KSA 144 156

Dubai 211 223

Brazil 338 400

Turkey 243 272

5.00%

5.50%

6.00%

6.50%

7.00%

Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16

Weighted Effective Yield of Eurobonds

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S A L

ECONOMIC NEWS

Domestic Currency Debt by Type of Holder in

February 2016

Source: ABL

Total Commercial Banks’ Assets by February (in

$M)

Source: BDL

Gross Public Debt Rose to $71.21B in February 2016

According to the Association of Banks in Lebanon (ABL), the

Lebanese gross public debt reached $71.21B in February 2016, a

2.84% year-on-year (y-o-y) increase.

Debt in LBP, accounting for 61.8% of total gross debt, increased by

5.56% y-o-y to reach $43.99B, while foreign currency (FC) debt,

grasping the remaining 38.2%, slid by 1% annually to stand at

$27.21B.

The Net Public Debt, which excludes the public sector deposits at

the Commercial banks and BDL, stood at $62.13B in February 2016,

increasing by a yearly 7.07%.

Commercial banks remained the largest holders of local currency

debt with a share of 44.4% of the total followed by a 38.8% stake

for the Central Bank (BDL) and 16.7% for the non-banking system.

Lebanon’s Commercial Banks’ Assets Ticked up by

0.32% (Y-t-D) by February 2016

The consolidated balance sheet of Lebanon’s commercial banks

revealed a 0.32% progress in assets from December 2015’s level of

$185.99B to $186.59B in February 2016, reflecting a 5.68% year-on-

year (y-o-y) growth.

In details, total reserves amounted to $71.60B revealing a 0.85%

year-to-date (y-t-d) increase over the same period. Loans to the

private sector summed up to $54.56B by February 2016, of which

around 88% were provided to resident borrowers. Private loans

denominated in foreign currencies (FC) ticked up by 0.10% from

December 2015 to $34.43B by February 2016. In turn, the

dollarization rate of private sector loans slipped from 74.83% in

December 2015 to 74.77% in February 2016. Furthermore, claims

on the public sector posted an increase of 1.27% on a y-t-d basis to

$36.26B by February 2016, mainly due to the increase in the banks’

subscription in Eurobonds.

Looking at the liabilities of commercial banks, resident private

sector deposits down ticked by 0.01% between December 2015

and February this year to register $119.71B. Similarly, non-resident

private sector deposits went down over the same period by 0.49%

to $31.70B. By February 2016, local currency deposits experienced

a 0.41% improvement to $53.46B (resident and non-resident).

Moreover, the dollarization rate of total private sector deposits

slightly dipped from 64.88% in December 2015 to 64.69% by the

end of February this year.

44.40%

38.80%

16.70%

Commercial Banks BDL Non-Banking Sector

144,111 153,969

166,008 176,553

186,586

2012 2013 2014 2015 2016

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S A L

Yearly Evolution of the Number of Refund

Transactions in Q1 2016

Source: Gobal Blue Tourist Spending Report

Tourists’ Spending Fell 12% (Y-o-Y) by Q1 2016

According to Global Blue, tourist spending in Lebanon decreased

by a yearly 12% in Q1 2016, compared to Q1 2015. This contraction

is mainly attributed to the relatively lower spending by GCC

nationals in the first three months of 2016. Looking at the number

of tourists in January and February together, the number of Saudi

and UAE visitors fell by 21.7% and 4.4%, respectively, compared to

the same period in 2015.

The largest bulk of tourist spending is accounted for by UAE visitors

with a share of 15% in the total, followed by 14% for the nationals

of Saudi Arabia, 7% for Egypt, 6% for Kuwait tourists and 5% for

Syria.

Tourist spending by Saudi Arabian visitors decreased by 23% in Q1

2016 compared to last year while spending by UAE tourists

collapsed by 10% over the same period. Tourist spending from

Kuwait, Egypt and Iraq fell by yearly 16%, 12% and 27%,

respectively. However, spending from France, Jordan and Syrian

nationals rose by 3%, 6% and 11%, respectively.

In Q1 2016, fashion and clothing was the category that captured

most of the tourist spending with a share of 70% in the total

followed by 17% for watches and jewelry. Spending on fashion and

clothing decreased 13% by March 2016 while spending on watches

and jewelry dipped 3% over the same period.

The capital Beirut is where 79% of tourist expenditures took place

while 15% were disbursed in Metn (Mount Lebanon). In Beirut,

tourist spending decreased by 15% while it inched up by 13% in

Metn.

On a different note, the number of refund transactions fell 9% (y-o-

y) by March 2016. Transactions carried out by Saudi Arabian,

Kuwaiti and Iraqi nationals, the biggest holders of refund

transactions, decreased by 24%, 19% and 13%, respectively.

-24%

-2%

-19%

-5%

7%

11%

-3%

-13% -11%

13%

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S A L

33.05

24.51

26.80

19.96

24.30

2012 2013 2014 2015 2016

Value of Kafalat Guarantees in Q1 (in $M)

Source: Kafalat

Kafalat Guarantees in Q1 2016 Reflect a Partial

Recovery in Investment Sentiment

According to Kafalat, the number of granted guarantees increased

from 143 in the first quarter (Q1) of 2015 to 172 in Q1 2016 and

their value rose from $19.6M in Q1 2015 to $24.3M in Q1 2016.

In terms of geographic allocation, the highest number of Kafalat

guarantees was granted in the region of Mount Lebanon, and

represented 37.79% of the total. The number of guarantees in the

Bekaa region represented 27.91% of the total while the number of

guarantees granted in the North of Lebanon constituted 12.21% of

the total.

Kafalat loan guarantees given in Mount Lebanon increased from 63

in Q1 2015 to 65 in Q1 2016, those granted in the Bekaa region

inched up from 27 in Q1 2015 to 48 in Q1 2016. Likewise, the

number of guarantees went up in the North of Lebanon, going from

17 in Q1 2015 to reach 21 in 2016.

The sectors benefitting from the biggest number of Kafalat

guarantees were Agriculture with a 48.26% share in the total,

Industry with a 30.23% share, and Tourism with a 15.7% share.

The number of guarantees granted for the agricultural sector

increased from 66 in the first three months of 2015 to 83 in the first

three months of 2016. The number of guarantees for the industrial

sector slightly improved from 50 in Q1 2015 to 52 in Q1 2016 while

the number of guarantees for the tourism sector registered 27 by

the end of March 2016, up from 14 guarantees in March 2015.

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S A L

Breakdown of Passenger and Commercial Cars by

March

Source: AIA

Number of Registered Cars Improved 6.72% by March

According to the Association of Lebanese Car Importers, the

number of newly registered commercial and passenger cars

improved during the first quarter of 2016 by 6.72% year-on-year (y-

o-y) to 8,590 cars. This was triggered by the 5.93% yearly increase

in the number of newly registered passenger cars to 7,990 and the

18.58% rise in newly registered commercial vehicles to 600.

The global developments related to lower oil prices and

depreciating currencies against the dollar, mostly the Japanese Yen

and the Euro, led to a noticeable shift in car buyers’ demand in

Lebanon in favor of the Japanese cars. As a result, Japanese cars

were the most demanded cars in Lebanon in the first 3 months of

2016, grasping a 37.87% share of the total market. Also, Korean

cars were second in the ranking with a market share of 33.54% in

March 2016, while European cars maintained their third rank with a

market share of 22.99%.

However and in terms of brands, Kia kept on holding the largest

share of newly registered passenger cars (20.16%), followed by a

15.09% stake for Toyota. Nissan and Hyundai came next in the

ranking, as Hyundai grasped 13.15% of newly registered passenger

cars, while Nissan held 8.66%.

In terms of sales per importer, Natco acquired the biggest bulk with

an 18.75% of the total, followed by BUMC (15.74%), Century

Motors (12.48%) and Bassoul-Heneine (10.63%).

7,392 7,484

7,796

7,543

7,990

578 444

565

506

600

2012 2013 2014 2015 2016

Passengers Cars Commercial Cars

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S A L

Key Growth Rates for the Global Economy

Year on Year Growth

Rates 2014 2015 2016p 2017p

World Output 3.4 3.1 3.2 3.5

Advanced

Economies 1.8 1.9 1.9 2

Emerging Market and

Developing

Economies

4.6 4 4.1 4.6

World Trade Volume

(goods and services) 3.5 2.8 3.1 3.8

Oil Prices (US

Dollars) -7.5 -47.2 -31.6 17.9

Consumer Prices in:

Advanced

Economies 1.4 0.3 0.7 1.5

Emerging Market and

Developing

Economies

4.7 4.7 4.5 4.2

Source: IMF

The IMF Revises Global Growth Downwards to a

Modest 3.2% for 2016

According to the International Monetary Fund’s (IMF) latest World

Economic Outlook (WEO) entitled “Too Slow for Too Long”, global

growth is projected at 3.2% in 2016, in line with that of last year,

but 0.2 percentage points lower than January’s edition of the WEO.

The downward revision is the result of increasing financial

turbulence, slower economic activity in advanced economies and

severe macroeconomic conditions in in Brazil, Russia and some

other commodity exporters.

Looking ahead to 2017 and onwards, advanced economies are

expected to have a modest growth as well as a weakened potential

growth. A stronger recovery in advanced economies is being

hindered by “unfavorable demographic trends, low productivity

growth and legacies from the global financial crisis”.

Therefore, the IMF expects global economic growth to recover to

3.5% in 2017 but that will be driven by emerging markets and

developing economies.

It is important to note that the 2017 projected recovery relies on

several crucial assumptions for the IMF:

• China transitioning into a more balanced growth after prior

excesses in its economy

• Commodity exporters seeing a pick-up in activity, even if

it’s at slower rates than in the past

• Conditions normalizing in several economies under stress

• Growth being resilient in other emerging markets and

developing economies

The IMF recommends that advanced economies seek structural

reforms, continued monetary policy accommodation but also fiscal

policies, where fiscal space allows. In fact, it is widely approved

amongst economists that monetary policies relying on negative

interest rates cannot be sustainable in the long run since there’s a

limit to how negative interest rates can be without leading to cash

hoarding. Therefore, fiscal policies must also be implemented to

boost growth.

As for Lebanon’s growth projections, they are not far from the

global economic gloom. Real GDP growth was revised downwards

to 1% in 2015 and 2016 compared to 2% and 2.5% projected back

in July 2015’s Article Four Consultations.

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S A L

CORPORATE DEVELOPMENTS

BLOM Bank’s Dividend Yield

BLOM Common

Shares

BLOM Preferred

2011 Shares

Dividend per

share for 2015 (In

USD)

0.83 0.7

Current Stock

Price (In USD) 10.61 10.15

Dividend Yield 7.8% 6.9%

Source: BLOM Bank, Beirut Stock Exchange

BLOM Bank Announces Dividend Distribution for 2015

During the Annual Ordinary General Assembly held on April 14th,

2016, BLOM Bank’s shareholders approved the accounts of the

bank for 2015 and the distribution of dividends and returns

amounting to LBP 273,539,889,000 or $181.45 million, accounting

for 45% of BLOM’s 2015 net profits.

The dividends will be distributed as follows:

• To holders of preferred shares series 2011, an amount

of $0.70 per share

• To holders of common listed shares, an amount of

LBP 1,250 per share or $0.83 per share

After the deduction of the applicable distribution tax at the rate of

5%, the net payable amounts are as follows:

• To holders of preferred shares series 2011, an amount

of $0.665 per share

• To holders of common listed shares, an amount of

LBP 1,187.50 per share or $0.79 per share

The payment shall take place through Midclear S.A.L, starting the

20th of April, 2016 for the holders of preferred shares series 2011

and 21st of April, 2016 for the holders of common listed shares with

the record date being the 20th of April 2016 for both common and

preferred shares.

According to the official statement from the Beirut Stock Exchange,

since the record date and the payment date for preferred shares

happen to fall on the same day (20th of April, 2016), the updating of

the list of shareholders and the start of dividend distribution will

overlap.

In order to avoid this overlap, the trading in BLOM Preferred 2011

shares will be suspended exceptionally during the trading session of

Friday 15th of April 2016 and will resume normally on Monday 18th

of April 2016. The 18th of April will be the ex-dividend date for

BLOM shares, as of which new shareholders are no longer entitled

to 2015’s dividends.

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Bank Audi’s Dividend Yield

Audi

Common

Shares

Audi

Preferred

F Shares

Audi

Preferred

G shares

Audi

Preferred

H Shares

Dividend

per share

for 2015 (In

USD)

0.4 6 6 6.5

Current

Stock Price

(In USD)

5.85 100 100 101.5

Dividend

Yield 6.8% 6.0% 6.0% 6.4%

Source: Bank Audi Official Website, Beirut Stock Exchange

Bank Audi Declared Dividends for 2015

According to Bank Audi and the Beirut Stock Exchange, Bank Audi’s

shareholders convened on April 8, 2016 for an Ordinary General

Assembly and declared a gross distribution of dividends as follows:

• To Holders of Series “F” Preferred Shares a total of USD 9 Million

on the basis of USD 6 per share.

• To Holders of Series “G” Preferred Shares a total of USD 9 Million

on the basis of USD 6 per share.

• To Holders of Series “H” Preferred Shares a total of USD 4.675

Million on the basis of USD 6.5 per share.

• To Holders of Common Shares: a total of LBP 241 Billion

($159.87M) on the basis of LBP 603 per share ( $0.4 per share)

However, after the deduction of the 5% withholding tax, the net

payable amounts would be:

• To Holders of Series “F” Preferred Shares a total of USD 6.550


• To Holders of Series “G” Preferred Shares a total of USD 6.550


• To Holders of Series “H” Preferred Shares a total of USD 4.631


• To Holders of Common Shares: a total of LBP 229 Billion

($151.91M) on the basis of LBP 572.85 per share ($0.38 per share)

Dividends will be paid through Midclear S.A.L. starting April 14,

2016 for the holders of shares as at April 13, 2016 (Record Date),

according to the records of Midclear S.A.L.

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FOCUS IN BRIEF

Public-Private Partnership in Lebanon

Lebanon’s infrastructure was extremely damaged by the 1975-1990 civil war. The quality of public utilities decayed further after

the war in 2006 and the Syrian war in 2011. Since then, Lebanon has lacked sustainable electricity, education, health, transport

and other basic networks due to the chronic inability of successive governments to manage and plan them. As a result, the

growth of the economy has been severely constrained.

The public company Electricite du Liban (EdL) weighs heavily on the government’s expenditures. Subsidies to EdL stood at an

average of $1.85B per year in the last 5 years. In addition, EdL is unable to supply houses and businesses with 24 hours of

electricity, pushing them to use private generators.

Road infrastructure is outdated and need rehabilitation, in addition to the need of investment in new roads. Traffic jam is

increasing every year with wasted time on the roads costing the economy hundreds of millions of dollars per year, with the

country lacking a well-functioning and organized public transport.

Even though water is abundant in Lebanon, it is polluted and wasted, due to leaking distribution infrastructure. Lebanon is

currently facing a critical standing in terms of water shortage, driven by a changing climate with rising temperatures and

unprecedented scarcity in rainfall. A planned network of 27 water retention dams has been delayed for decades.

As for waste, it has piled up on the roads for around 10 months, with no sustainable waste treatment being implemented. This

has led to a growing environmental disaster that threatens the health of its citizens and endangers the country’s beautiful

valleys and beaches.

Due to the limited budget resources, Lebanon has made no significant investments in infrastructure. Lebanon’s high public

debt, standing at 129.26% of Gross Domestic Product, hinders the government’s ability to renovate the infrastructure.

Moreover, the government is incapable of increasing its revenues, which are $3.95B lower than its expenditures.

Investment in infrastructure plays a key role in the economy’s potential and ensuring sustainable growth, in addition to

improving the living standards of the population.

One way to develop new infrastructure without crippling the country’s fiscal policy would be through Public-Private Partnership

(PPP). According to the European Investment Bank, PPP is the private-sector construction and operation of infrastructure which

would otherwise have been provided by the public sector. PPP is an agreement between the public sector and private sector

companies, in which the private sector participates in governmental projects providing the skills, technical assistance, funds,

and risk absorption or any other element needed for the completion of the project. The private sector assumes substantial

financial, technical, and operational risks in the project and plays a great role in the maintenance of public facilities or service

delivery. PPP is based on the strengths of both the public agency and the private partner, which are directed toward the

achievement of goals that optimize public needs, funds and services.

Different Legal PPP Frameworks

Type

Ownership & Operation of

Assets

Operation &

Maintenance

Investment

Ultimate

Ownership

Duration

(years)

Management Contract Public Private Public Public 3-5

Leasing Public Private partnership Private Public Public 8-15

Build, Own & Transfer Public Private partnership Private Private Semi-private 20-30

Build, Own, Operate &

Transfer

Public Private partnership Private Private Semi-private 20-30

Concession Public Private partnership Private Private Public 20-30

Build, Lease & Own Public Private partnership Private Private Private 25+

Build, Own & Operate Public Private partnership Private Private Private 25+

Partial Privatization Private Private Private Private 25+

Full Privatization Private Private Private Private Indefinite

Source: Higher Council for Privatization

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PPP offers many benefits, be it for the public at large, consumers, the local economy and the government.

Public-Private Partnership serves the economy as a whole by decreasing unemployment rate and brain drain. PPP would create

new jobs as companies enlarge their operations and seek to gain market share in a competitive environment. Moreover,

through PPP, the government can attract foreign capital, which is an important ingredient for job creation and economic

development. This new business environment would help young Lebanese, who are in the country, to stay as they will find jobs

domestically, and it will even encourage Lebanese living abroad to come back and contribute to the country’s production.

Due to the monopoly-free environment, PPP will ensure consistent quality services and products. Companies will need to

innovate and invest in modern equipment so as to differentiate their service offering from that of their competitors, leading to

all round better services and products that are consistent and continuous.

This will increase productivity levels and encourage innovation since it is well documented that private companies are generally

more productive and efficient as they tend to have the financial and human resources, as well as the organizational flexibility,

needed to operate at an optimum level. Public organizations, meanwhile, tend to score low on productivity as they often

operate in monopolistic environments, lacking the financial incentives to innovate and be more productive.

The competitive market would lead to lower prices in the long run. The entry of different operators to the market will increase

competition and lead to a reduction in prices for the consumers. However, sometimes the market will remain monopolistic or

oligopolistic, especially in a small market like Lebanon. Hence the government has to intervene to prevent manipulation of

prices by the private sector.

PPP will help reduce the bureaucracy and red tape that has historically plagued public entities to the detriment of consumers.

Private companies are required to operate with minimal bureaucracy to survive and thrive in an ever-competitive market.

PPP will allow the private sector to play a larger role in the privatized sectors as entrepreneurs establish supply, distribution and

other ancillary businesses around the privatized entities.

PPP would reduce the government’s burden of subsidizing unprofitable public entities. P3 will put an end to the financial drains

of state-owned enterprises that have put a strain on the public treasury. As an example, the state has had to subsidize EDL for

up to a billion dollars a year; an amount that could have been spent on education, health care, security or other sectors in need

of financing.

Given the lack of public funds and the ongoing political stability, which hinders development of any substantial project by the

state, many sectors could benefit from PPP. Beirut airport can be renewed and expanded and an additional airport could be

opened. Water infrastructure can be upgraded and expanded to provide continuous supply across the country. In the

transportation sector, main highways could be upgraded, a proper public transport system could be developed, and railways

could be revived. PPP can also be adopted to expand the existing infrastructures of health and education sectors and to

improve their operations and productivity.

EDL is one of the best examples in which PPP would apply. Partnering with the private sector to put the EDL on a profitable

track through enhancing its operations will be a major achievement on the infrastructural level, and has proved successful in

regions such as Zahle. The double billing borne by people and businesses’ from EDL and the private generators will be

terminated, and they will enjoy 24 hours of electricity. On the fiscal side, adjusting tariffs based on the current oil prices,

enlarging the tax base, and reaching a higher production, will generate higher revenues and save over $1.5 billion in current

expenditures. Moreover, the treasury will be transferring the cost of this investment to the private sector, thereby sparing its

own accounts.

Worth noting that the first concession in the history of Middle East was the Beirut-Damascus road, in 1858. This was followed

by the water concession of Nahr el Kalb and the construction if the 1st basin of Port of Beirut.

After the civil war, in an attempt to rebuild the infrastructure and modernize the National Postal Services, the government

appointed a private operator, Canada Post & SNC Lavalin, to “Build, Operate and Transfer” the National Postal Services, what is

currently known as LibanPost.

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However, adopting PPP also has its shortcomings.

While private sector can make it easier to get financing, investment will only be available when the operating cash flows of the

project are expected to provide a return on investment. This means that if returns are negative, the cost has to be borne either

by the customers or the government through subsidies, to encourage investments.

Some projects may be politically or socially challenging to introduce and implement. For instance, there might be an existing

public sector workforce that fears being transferred to the private sector.

Private firms will be cautious about accepting major risks beyond their control. If they bear risks then their price for the service

will reflect this. Private firms will also want to know that the rules of the game are to be respected by government such as

providing fair regulation and increasing tariffs. To accept significant risks, the private sector would want to have substantial

level of control over operations.

Private sector will do what it is paid to do and no more than that. Therefore incentives and performance requirements need to

be clearly set out in the contract. The focus should be on performance requirements that are output-based and relatively easy

to monitor.

Government responsibility would not halt. Citizens will continue to hold government accountable for quality of utility services.

Government will also need to retain sufficient expertise to be able to understand the PPP arrangements, to carry out its own

obligations under the PPP agreement and to monitor performance of the private sector and enforce its obligations.

A clear legal and regulatory framework is crucial for achieving a sustainable solution. Given the long-term nature of these

projects and the complexity associated with them, it is difficult to identify all possible contingencies during project

development. It is possible that some of the projects may fail or may be terminated prior to the planned term of the project, for

a number of reasons including changes in government policy, failure by the private operator or the government to perform their

obligations or due to external circumstances such as force majeure. While some of these issues will be able to be addressed

in the PPP agreement, it is likely that some of them will need to be managed during the course of the project.

Preparatory work to adopt a PPP law has been completed in Lebanon. The Higher Council for Privatization, established by Law

228 in 2000, is the authority in charge of planning and implementing privatization programs. Since 2006 the HCP has started

lobbying for the passage of a public private partnership (PPP) law, but to no avail. On the 14th of February 2014, the HCP issued

the guidelines of the PPP draft law.

The draft law is made up of six chapters: The first is an introduction about PPP; the second is about how to study and prepare

for a joint project; the third is the phase of studying a joint project; the fourth is about how to choose a private partner; and the

fifth is about guarantees of PPP projects. The final chapter discusses the means to supervise and follow up on the project.

Such a law is essential for the development of Lebanon’s crumbling infrastructure, job creation and the stimulation of

Lebanon’s economy.

Lebanese banks can also play a role in PPPs. They can act as an advisory in the pre selection process, a direct financer through

traditional loans, and as the equity/debt issue manager if the financing happened through the capital markets.

Finally, Lebanon needs a modern PPP law that provides the transparency and competence needed for the success and

sustainability of PPP projects. This would encourage investors to take on more PPP projects that would improve Lebanon’s

infrastructure, which in turn would lead to higher economic growth.

http://www.hcp.gov.lb/newsdetails.asp?newsid=14

Your Investment Reference

S A L

Research Department:

Sobhi Chatila [email protected]

Lana Saadeh [email protected]

Riwa Daou [email protected]

Myrna Chami [email protected]

Marwan Mikhael [email protected]

mailto:[email protected]

mailto:[email protected]

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