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Your Investment Reference

THE

LEBANON BRIEF

ISSUE 824

Week of 10 – 15 June, 2013

ECONOMIC RESEARCH DEPARTMENT

Rashid Karame Street, Verdun Area

P.O.Box 11-1540 Beirut, Lebanon

T (01) 747802 F (+961) 1 737414

[email protected]

www.blom.com.lb

S A L

The Lebanon Brief Table Of Contents of 14

ISSUE 824; Week of 10 -15 June 2013

S A L

TABLE OF CONTENTSTABLE OF CONTENTSTABLE OF CONTENTSTABLE OF CONTENTS

FINANCIAL MARKETSFINANCIAL MARKETSFINANCIAL MARKETSFINANCIAL MARKETS 3333

Equity Market 3

Foreign Exchange Market 5

Money & Treasury Bills Market 5

Eurobond Market 6

ECONOMIC AND FINANCIAL NEWSECONOMIC AND FINANCIAL NEWSECONOMIC AND FINANCIAL NEWSECONOMIC AND FINANCIAL NEWS 7777

Lebanon’s Fiscal Deficit Drops by 16.5% up Until February 7

Port of Beirut Generates Revenues of $87.06M up to May 8

Car Sales Rose 5.3% y-o-y by the End of May 2013 9

Kafalat Guarantees Loans for $42.21M up to May 9

Cleared Checks Number Rose by 2.4% in the First Five Months of 2013 10

Aid to Lebanon in May Targets Cultural and Humanitarian Causes 10

CORPORATE DEVELOPMENTSCORPORATE DEVELOPMENTSCORPORATE DEVELOPMENTSCORPORATE DEVELOPMENTS 11111111

Solidere Reports a 90% Plunge in Earnings for FY 2012 11

BLC Bank and the International Finance Corporation (IFC) Launch “SME Toolkit Lebanon” 11

RYMCO Posts Net Income of $666,461 as of end March 12

FOCUS IN BRIEFFOCUS IN BRIEFFOCUS IN BRIEFFOCUS IN BRIEF 13131313

Fostering Internet Infrastructure Essential for Future Growth 13

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 14


S A L

FINANCIAL MARKETSFINANCIAL MARKETSFINANCIAL MARKETSFINANCIAL MARKETS

Equity Market

Stock Market

14/6/2013 7/6/2013 % Change

BLOM Stock Index* 1,150.29 1,182.00 -2.68%

Average Traded Volume 120,215 124,923 -3.77%

Average Traded Value 1,662,196 974,977 70.49% *22 January 1996 = 1000

Lebanese and foreign investors’ sentiment remains

vulnerable towards the regional political unrest and

the delay in the formation of a new cabinet in

Lebanon. This attitude was mainly reflected in the

BLOM Stock Index (BSI) performance, losing 6%

during the last two months. The average daily

volume trade reached 120,215 shares valued

$1.66M in the week ending June 14, 2013, from

124,923 shares traded last week with a value of

$0.97M. The BLOM Stock Index (BSI), Lebanon’s

equity benchmark index, lost a weekly 2.68% to

reach 1,150.29 points compared to last Friday’s

close of 1,182.00 points. With respect to the market

capitalization, it edged down by $234.13M to

$8.94B.

The regional equity markets witnessed a mixed

performance this week, with Egypt capturing the

spotlights. The latter continued to be the worst

performer this week tumbling by a weekly 8.09% to

a 6-month low on rising worries over the exclusion

of the Egyptian bourse from the MSCI Emerging

Market Index on top of concerns ahead of a planned

mass demonstration on June 30 against President

Mohamed Mursi. Moreover, more than seven

million signatures were collected for a petition

calling for Mursi’s removal and early election.

The BSI bested the Egyptian bourse but was

overtaken by the Kuwaiti Stock Exchange that lost

1.21%. Qatar Stock Exchange was the best

performer this week increasing by a weekly 2.04%.

On a comparative scale, the major regional indices

ended the week in the red. However, the BSI failed

to beat both the S&P Pan Arab Composite

LargeMidCap Index and the S&P AFE40 index. The

former lost 0.55% to settle at 119.32 points while

the latter declined by 1.00% to stand at 58.14

points. The Lebanese benchmark outperformed the

MSCI Emerging index that fell 4.21% on a weekly

basis to 943.59 points.

Banking Sector

Mkt 14/6/2013 7/6/2013 %Change

BLOM (GDR) BSE $8.75 $8.80 -0.57%

BLOM Listed BSE $8.25 $8.25 0.00%

BLOM (GDR) LSE $8.75 $8.89 -1.57%

Audi (GDR) BSE $6.48 $6.83 -5.12%

Audi Listed BSE $6.30 $6.30 0.00%

Audi (GDR) LSE $6.60 $6.60 0.00%

Byblos (C) BSE $1.58 $1.53 3.27%

Byblos (GDR) LSE $70.00 $70.00 0.00%

Bank of Beirut (C) BSE $19.00 $19.00 0.00%

BLC (C) BSE $1.95 $1.95 0.00%

Fransabank (B) OTC $28.00 $28.00 0.00%

BEMO (C) BSE $1.84 $1.84 0.00%

Mkt 14/6/2013 7/6/2013 % Change

Banks’ Preferred

Shares Index *

104.20 104.19 0.01%

BEMO Preferred 2006 BSE $100.10 $100.00 0.10%

Audi Pref. E BSE $101.00 $100.90 0.10%

Audi Pref. F BSE $100.20 $100.20 0.00%

Byblos Preferred 08 BSE $100.00 $100.00 0.00%

Byblos Preferred 09 BSE $100.50 $100.50 0.00%

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

Bank of Beirut Pref. I BSE $25.45 $25.45 0.00%

Bank of Beirut Pref. H BSE $25.40 $25.40 0.00%

BLOM Preferred 2011 BSE $10.12 $10.12 0.00%

* 25 August 2006 = 100

1050

1100

1150

1200

1250

Jun-12 Sep-12 Dec-12 Mar-13 Jun-13

BLOM Stock Index HI: 1,227.46

LO: 1104.42



S A L

Real Estate

Mkt 14/6/2013 7/6/2013 % Change

Solidere (A) BSE $11.00 $12.38 -11.15%

Solidere (B) BSE $11.00 $12.31 -10.64%

Solidere (GDR) LSE $10.62 $12.15 -12.59%

The banking stocks, which captured the bulk of

trades this week with a 58.2% market share,

posted mixed performance. The Global

Depositary Receipts (GDR) of BLOM Bank and

Bank Audi lost 0.57% and 5.12% to close at $8.75

and $6.48, respectively. The common shares of

Byblos bank gained 3.27% to settle at $1.58.

Manufacturing Sector

Mkt 14/6/2013 7/6/2013 % Change

HOLCIM Liban BSE $15.35 $15.35 0.00%

Ciments Blancs (B) BSE $3.23 $3.23 0.00%

Ciments Blancs (N) BSE $3.24 $3.24 0.00%

As for the BLOM preferred shares index (BPSI), it

slightly inched up by 0.01% to settle at 104.20

points. The gauge was boosted by a similar

0.10% increase of the preferred shares of BEMO

class 2006 and those of Audi class E. The former

closed at $100.10, while the latter settled at

$101.00.

Funds

Mkt 14/6/2013 7/6/2013 % Change

BLOM Cedars Balanced

Fund Tranche “A” ----- $6,956.01 $6,966.82 -0.16%


Fund Tranche “B” ----- $5,067.24 $5,075.44 -0.16%


Fund Tranche “C” ----- $5,283.14 $5,291.35 -0.16%

BLOM Bond Fund ----- $9,724.12 $9,738.32 -0.15%

On the London Stock Exchange (LSE), BLOM

GDR shares lost 1.57% to $8.75 while the GDR

shares of Audi and Byblos maintained their

respective prices of $6.60 and $70. Meanwhile,

Solidere GDR shares plunged 12.59% to $10.62.

Real estate stocks tumbled during the week with

both Solidere stocks, class “A” and “B”, falling by

11.15% and 10.64% to converge at the same

price of $11.00. The considerable weekly decline

occurred gradually as the 2012 financial results of

Solidere were published during the past week

showing a 90% drop in the company’s earnings.

Retail Sector

Mkt 14/6/2013 7/6/2013 % Change

RYMCO BSE $3.50 $3.50 0.00%

ABC (New) OTC $33.00 $33.00 0.00%

Looking ahead, the activity on the Beirut Stock

Exchange is expected to maintain the norm until

awaited breakthrough in Lebanon’s political

deadlock.

Tourism Sector

Mkt 14/6/2013 7/6/2013 % Change

Casino Du Liban OTC $480.00 $490.00 -2.04%

SGHL OTC $7.00 $7.00 0.00%



S A L

Foreign Exchange Market

Lebanese Forex Market

14/6/2013 7/6/2013 %Change

Dollar / LP 1512.50 1512.50 0.00%

Euro / LP 2009.50 1994.57 0.75%

Swiss Franc / LP 1631.49 1620.79 0.66%

Yen / LP 15.87 15.63 1.54%

Sterling / LP 2355.62 2347.48 0.35%

NEER Index** 113.19 113.55 -0.32%

*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.

Compared to last week, demand on the US dollar remained

stable as the range at which banks exchanged the currency

stabilized at $/LP 1,510.5 - $/LP 1,514.5 with a mid-price of

$/LP1, 512.5. Foreign assets (excluding gold) at the Central

Bank stood at $36.76B as of end May 2013, 1.42% less than

end of April’s $37.29B. Meanwhile, the dollarization rate of

private sector deposits stood at 65.06% in April compared to

65.17% in March.

Nominal Effective Exchange Rate (NEER)

The euro recorded shy gains against the US Dollar, since

speculations indicate that the Federal Reserve will not raise its

benchmark rate even after a withdrawal from quantitative

easing rounds. The euro was also boosted by April’s industrial

output results, especially as French output recovered with a

2.3% monthly growth in April after a prior 0.6% contraction. By

Friday June 14th, 2013, 12:30 pm Beirut time, the euro closed

at €/$ 1.33 up by 0.75% from last week. As for the dollar-

pegged LP, it depreciated to €/LP 2,009.50 from €/LP 1,994.57

recorded on Friday June 7th. The Nominal effective exchange

rate (NEER) slipped by 0.32% over the cited period to 113.19

points, while its year-to-date performance stood at 9.04%.

Money & Treasury Bills Market

Money Market Rates

Treasury Yields

14/6/2013 7/6/2013 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

14/6/2013 7/6/2013 Change bps

Overnight Interbank 2.75 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 May 30th, broad Money M3 grew by

LP426B ($283M), to reach LP161,519B ($107.14B). M3

growth rate reached 7.20% on a y-o-y basis and 2.27% from

end of December 2012. As for M1, it widened by LP216B

($143M) since currency in circulation increased by LP45B

($29.85M) and demand deposits increased by LP171B

($113.43M).Total deposits (excluding demand deposits)

registered a LPB210.33B ($139.52M) expansion, due to the

LP43B increase of term and saving deposits in LP and the

$111M rise in deposits denominated in foreign currencies.

During the period 23-30 May, the broad money dollarization

rate slipped by 5bps to reach 58.62% compared to its

previous level of 58.67%. According to The Central Bank, the

overnight interbank rate stood at 2.75% by April 2013.

In the TBs auction held on June 6th, the Ministry of Finance

raised LP471.09B ($312.5M) through the issuance of Treasury

Bills. The highest demand was witnessed on the 10-years

(10Y) bonds capturing 81% of total subscriptions, while the

8Y, 5Y, 6-months and 3-months bonds, notes and bills

respectively accounted for 13%, 0.02%, 6% and 1% of the

total. During the auction, the average discount rate for the 6

and 3 months bills stood at 4.87% and 4.39% while the

average coupon rate for the 10Y and 8Y bonds and the 5Y

notes registered 8.24%, 7.80% and 6.74% respectively. New

subscriptions exceeded maturing T-bills by LP304.891B

($202.25M).

99

101

103

105

107

109

111

113

115

117

Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13



S A L

Eurobond Market

Eurobonds Index and Yield 13/6/2013 6/6/2013 Change Year to Date

BLOM Bond Index (BBI)* 104.170 106.010 -1.74% -4.48%

Weighted Yield** 6.07% 5.72% 35 105

Weighted Spread*** 494 469 25 64

*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

13/6/2013

Price*

6/6/2013

Price*

Weekly

Change%

13/6/2013

Yield

6/6/2013

Yield

Weekly

Change bps

2014, Apr - 7.375% 102.70 103.14 -0.43% 4.05% 3.61% 44

2014, May - 9.000% 103.99 104.62 -0.61% 4.35% 3.75% 60

2015, Jan - 5.875% 101.81 101.95 -0.14% 4.68% 4.60% 8

2015, Aug - 8.500% 107.10 108.12 -0.94% 4.97% 4.52% 45

2016, Jan - 8.500% 107.92 108.90 -0.90% 5.20% 4.84% 36

2016, May - 11.625% 116.96 117.89 -0.79% 5.26% 4.99% 28

2017, Mar - 9.000% 110.98 111.88 -0.81% 5.72% 5.48% 24

2018, Nov - 5.150% 96.44 97.66 -1.25% 5.93% 5.66% 27

2020, Mar - 6.375% 98.15 100.65 -2.48% 6.72% 6.25% 47

2021, Apr - 8.250% 108.81 110.58 -1.60% 6.78% 6.51% 27

2022, Oct - 6.100% 96.00 98.04 -2.08% 6.68% 6.38% 30

2023, Jan - 6.00% 94.57 96.89 -2.40% 6.78% 6.44% 34

2024, Dec - 7.000% 100.32 103.95 -3.49% 6.96% 6.51% 45

2026, Nov - 6.600% 94.83 98.28 -3.52% 7.21% 6.80% 41

2027, Nov - 6.75% 94.63 98.61 -4.03% 7.36% 6.90% 46

*Bloomberg Data

The Lebanese Eurobond market declined during the week as international investors reduced their positions after the recent

domestic and regional escalation of events and following the downward trend of the US treasuries that started at the

beginning of May this year. This high supply for Eurobonds also matched the country’s Credit Default Swaps (CDS)

ascending trend that revealed investors negative outlooks concerning Lebanon’s economic developments. As a result, the

Lebanese BLOM Bond Index (BBI) inched 1.74% down to 104.17 points by the week, lagging behind the JP Morgan

emerging markets bond index that declined by 0.64% to 636.76 points. Yields on the medium and long term bonds

maturing in 2018 and 2023 surged by 63 basis points (bps) and 34 bps to reach 5.85% and 6.78%, respectively.

In the US, several indicators showed signs of economic recovery where expectations rose about the Fed cutting its bonds

purchases by the end of the year. Accordingly, the safe assets market continued to show a negative performance as the 5Y

and 10Y US Treasury notes and bonds yields added 10 bps and 11 bps to stand at 1.11% and 2.19%, respectively. The

respective spreads between the 5Y and 10Y US bond yields and their comparable Lebanese Eurobond yields widened by 53

bps and 23 bps to reach 474 bps and 459bps, respectively. Lebanon’s 5Y CDS continued its upward trend this week,

climbing to 456-503 bps from the previous 439-485 bps quote, as regional tensions weighed over investors’ confidence in

the government’s ability to repay its debt. In regional economies, Dubai’s 5Y CDS narrowed this week by an average of 8

bps to 225-245 bps. Saudi Arabia’s 5Y CDS slightly widened to 70-75 bps from its previous quote of 67-76 bps. As for world

emerging markets, the 5Y CDS in Turkey rose to 166-171 bps from 156-160 bps following the anti-government protests in

the country. 5Y CDS in Brazil closed at 149-153 bps compared to last week’s quote of 168-171 bps.

4.50%

5.00%

5.50%

6.00%

Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13

Weighted Effective Yield of Eurobonds



S A L

EEEECONOMIC AND FINANCIAL NEWS CONOMIC AND FINANCIAL NEWS CONOMIC AND FINANCIAL NEWS CONOMIC AND FINANCIAL NEWS

Lebanon’s Primary Deficit / Surplus

Up to February

Source: Ministry of Finance

Lebanon’s Fiscal Deficit Drops by 16.5% up Until

February

Lebanon’s Fiscal deficit narrowed by 16.5% to $297.69M or

16.05% of total expenditures during the first two months of

2013 compared to the same period last year, according to data

from the Ministry of Finance. The primary balance also improved

recording a surplus of $70.26M, up from a surplus of $43.96M

by February 2012.This considerable enhancement came as total

expenditures dropped by 5.9% y-o-y to $1.86B, whereas

revenues declined at a slower pace of 3.5% y-o-y to stand at

$1,56B. Budget expenditures retreated by a yearly 5.4% to

reach $1.45B mainly due to the 48.8% fall in budget

expenditures previous years to $166.08M combined with the

19.9% decline in Electricite du Liban (EdL) expenses to

$289.08M. As for interest payments, they declined 6.2% y-o-y to

$345.29M as the service of domestic debt fell 6.3% y-o-y to

$268.75M, while interests on foreign currency denominated

debt decreased by 6.1% to reach $76.54M by February this

year. Budget revenues declined during the first two months of

2013 by 5.3% to stand at $1.46B as non-tax revenues plunged

11.9% to $328.66M, compared to $372.88M by the end of

February 2012. Tax revenues decreased 3.1% y-o-y to $1,13B

from $1.17B in 2012. VAT revenues retreated by 7.1% to

$411.06M up until February, while customs revenues slightly

edged up by a yearly 0.5% to stand at $232.57M in the first two

months of 2013. Treasury inflows grew 33.9% to reach

$95.88M, while the treasury spending dropped 7.6% to stand at

$404.95M.

324.26

-24.48

43.96

70.26

-5%

0%

5%

10%

15%

20%

25%

-80

0

80

160

240

320

400

2010 2011 2012 2013

Primary Deficit / Surplus (In $M)

Primary Deficit / Surplus (In % of Total Expenditures)



S A L

Port of Beirut Revenues

Up to May (In $M)

Source: Port of Beirut Authorities

Port of Beirut Generates Revenues of $87.06M up to

May

During the first five months of 2013, Port of Beirut’s (PoB) total

revenues rose to $87.06M compared to $69.18M in the same

period last year, since the PoB became an alternative middle-

eastern shipment hub amidst the regional upheaval. After falling

by 6% in month-ago terms in February revenues have been

picking up ever since, albeit at regressive monthly rates of 10%

in March, 4% in April and 5% in May. Up to May, Port’s income

was lifted by total container activity (container activity and

transshipment) which rose by 6.31% y-o-y to 453,873 twenty-

foot equivalent units (TEU) compared to 426,950 TEU up to May

2012. Over the same cited period, the 20.89% growth in total

container activity to 301,787 TEU overtook the 14.23% decline

in transshipment activity that stood at 152,086 TEU as of May’s

end. The most substantial y-o-y decrease of 36.87% in

transshipment activity continues to be associated with CMA

CGM’s channeled volume. Meanwhile, MSC’s transshipment

volume increased by 12.79% on a yearly basis to 89,287 TEU

but remained insufficient to boost overall transshipment activity.

On the other hand, demand for cars demonstrated a 16.52% y-

o-y jump as they totaled 37,401 units up to May 2013 compared

to 32,097 units up to the same month last year. In order to

accommodate the heavy inflow of cars, Caretaker Public Works

and Transportation Minister Ghazi Aridi is set to transform some

of the piers into parking lots and to increase working hours at

the port in order to accelerate the processing of containers and

official documents. These measures are a necessity given the

bustling port activity. In fact, imported and exported

merchandises passing through the city’s port increased from

2850.8 tons as of May 2012 to 3366.2 tons as of May 2013

while the number of vessels docking at the port rose from 828

up to May 2012 to 887 up to May 2013.

2009 2010 2011 2012 2013

63.565.1

64.56

69.18

87.06



S A L

Car Passengers Sales

Up to May

Source: Association of Car Importers in Lebanon

Kafalat Guarantees

Up to May

January- May 2011

January- May 2012

January-May 2013

Loans Guaranteed

481 425 309

Total Value($) 64,942,443 56,146,294 42,206,654

Average Value ($)

135,015 132,109 136,591

Source: Kafalat

Car Sales Rose 5.3% y-o-y by the End of May 2013

According to figures released by the Association of Car

Importers in Lebanon, 3,561 new passenger and commercial

vehicles were registered in May this year compared to 3,433

vehicles a year earlier, recording a yearly increase of 3.7%.

Passengers’ car sales, an indicator of spending on durable

goods, grew 1.4% y-o-y mainly due to a higher demand for fuel

efficient smaller cars. This increase does not reveal higher

revenues for car importers since the majority of sold cars were

small sized and at reduced prices. On a cumulative basis,

registration of new passenger and commercial cars during the

first five months of 2013 reached 15,126, rising 5.3% from May

2012. Demand for Chinese vehicles increased to 267 sold cars,

up by 184.0% from the same period last year as consumers are

seeking lower cost and fuel efficient cars. European cars came

in second place in terms of consumers’ choices evolution with

their sales rising by 10.6% as of May 2013 to 2,878 vehicles

from 2,601 a year earlier. In contrast, demand for Japanese cars

dropped by 7.5% by May 2013 to 3,446 compared to the same

period last year. In terms of market share, Korean cars are still

grabbing the lion’s share with 48% of total car sales up to May,

followed by Japanese and European vehicles with shares of

24% and 20%, respectively. On the brands side, sales

breakdown ranked Kia at the top with a 28% stake of the total,

followed by Hyundai (20%) and Nissan (13%). According to

market share data, the top 5 distributors in Lebanon since year-

start are respectively: NATCO SAL (26%), Century Motor Co

(19%), RYMCO (13%), Bassoul Heneine (7%) and BUMC (6%).

Kafalat Guarantees Loans for $42.21M up to May

Data from Kafalat sheds light on the economic woes undergone

by all the sectors and the regions of Lebanon following local and

regional unrest. Up to May, Kafalat granted loans worth

$42.21M, 25% lower than the same period in 2012. Accordingly,

the lender issued 309 loan guarantees in the first five months of

2013 compared to 425 in the first five months of 2012. The

regions of the North, the South and Mount Lebanon, suffered

the greatest decreases in the number of issued guarantees

since the latter respectively fell by 41% to 34, 39% to 35 and

29% to 123, up to May. Over the same period, the number of

issued guarantees to the Industrial, Tourism and Agricultural

sectors plummeted by 35%, 25% and 23%, to reach 106, 60

and 121 respectively. In May alone, Mount Lebanon, Bekaa and

the South captured the bulk of guaranteed loans as their share

in the total stood at 36.36%, 22.73% and 15.15%, respectively.

All of the cited regions witnessed respective y-o-y decreases of

27%, 40% and 29% in the number of issued guarantees.

Meanwhile, the top loan-capturing sectors were Agriculture,

Industry and Tourism with respective shares of 45.45%, 30.3%

and 19.7% in total guaranteed loans. The number of guarantees

allocated to these sectors dropped by 23%, 41% and 24%,

amounting to 30, 20 and 13 in May, respectively.

10,399

11,668

12,562

11,737

13,418

14,179

-40%

0%

40%

80%

5,000

10,000

15,000

2008 2009 2010 2011 2012 2013

Passengers' Car Sales

Change in Passengers' Car Sales (RA- In %)



S A L

Total Value of Cleared Checks and Dollarization

Rate

Up to May

Source: ABL

Selected Aid Projects in May

Donating

Agent Project Value

World Bank Social Promotion and

Protection $30M

European

Union Organization of the Lebanese

Cultural Activities €100,000

Source: Ministry of Finance

Cleared Checks Number Rose by 2.4% in the First

Five Months of 2013

Banks’ clearing activity up to May 2013 appreciated by 2.4%

year-on-year, with the value of cleared checks totaling $29.57B,

partly reflecting a rise in private demand. Local and Foreign

denominated checks took the same upward direction in terms

of value as the former increased by 13.4% to $6.73M for LBP

checks, while Foreign currencies checks slightly edged up by

0.1% to $22.84B up to May 2013. The rate of cleared checks in

US dollars, the most relevant estimate of economic dollarization,

went down by 211 basis points (bps) year-on-year to stand at

77.23% in the first-five months of 2013 pointing towards an

increasing role in the national currency despite the persistent

dominance of checks denominated in foreign currencies.

Furthermore, default on check payments volume in the first five

months of 2013 declined by 7.5% y-o-y to reach 107,396

returned checks, while their value climbed 14.4% to $730M.

When compared to April 2013, checks activity reflects an

increase in terms of volume and a fall in terms of value. The

total number of checks reached 1.14M worth $5.98B in May

compared to a total of 1.12M checks valued at $6.33B in April.

Aid to Lebanon in May Targets Cultural and

Humanitarian Causes

Lebanon was a recipient of cultural and humanitarian aid during

the month of May, according to the latest Aid Coordination

Newsletter from the Ministry of Finance. UN agencies officials

in collaboration with the Lebanese government created a

consolidated plan to support the displaced Syrians in Lebanon

that will require a total amount of $1.1B. Separately, other aid

and events in May included a two-year extension of the

disbursement deadline of the €70M remaining tranche of the

electricity sector component through an amendment to Paris III

loan agreement. The amendment was signed on the 22nd of

May between the Lebanese Minister of Finance and the French

Ambassador. Worth noting that the $30M Social Promotion and

Protection project approved by the World Bank to support

unfortunate people in Lebanon took place also in May the 17TH.

On the cultural level, the European Union launched a call for

proposals aiming the organization of cultural activities in the

country and worth €100,000M. The call targets the promotion of

intercultural understanding via artistic and cultural activity.

20.65

28.33 28.25 28.7529.57

76%

77%

78%

79%

80%

81%

82%

0

5

10

15

20

25

30

2009 2010 2011 2012 2013

Total Value (In $B - LA)Dollarization Rate (In % - RA)



S A L

CORPORATE CORPORATE CORPORATE CORPORATE DEVELOPMENTSDEVELOPMENTSDEVELOPMENTSDEVELOPMENTS

.

Solideres’s Financial Highlights

FY 2011 FY 2012 % Ch

Revenues

from Land

Sales

$242M $50M -79%

Revenues

from Rentals $50M $54M 8%

Net Income $162M $16M -90%

Earnings Per

Share $1.04 $0.10 -90%

Source: Company Data

Recommendations for Efficient SMEs

Access to

Finance

Accelerate development of equity financing,

venture capital and business angels

Develop the stock exchange with less

stringent requirements for SMEs

Provide a supportive regulatory framework

Skilled

Human

Capital

Promote vocational education and

apprenticeship programs to avoid skills

mismatch

Creation of Training Centers in partnership

with universities, international donors

Constant assessment of skills demanded by

SMEs

Innovation

and

Technology

Enhance cluster initiatives for positive

technological spillovers

Encourage R&D efforts through tax

incentives

Source: Ministry of Economy and Trade, Prospect Initiatives for the

Lebanese SME Sector

Solidere Reports a 90% Plunge in Earnings for FY

2012

Solidere released its audited financial results for 2012, reporting

a 90% decline in earnings from $162M in 2011 to $16M in 2012.

Significantly lower land sales were the key reason behind this

drop; Solidere reported selling only one plot of land in the

reclaimed area priced at $50M versus several plots sold in 2011

valued at $242M. Investor sentiment in general has been

affected by the regional political environment causing investors

to follow a wait-and-see approach before committing to large

investments, such as Solidere’s land plots. Revenues from

rentals however registered a growth of 8% to reach $54M in

2012 compared to $50M in 2011. This was not enough to

compensate for lower land sales as rentals normally constituted

a smaller weight of the overall top-line. Solidere’s sales backlog,

a forward-looking indicator, remained at $40M with no new

additions into the balance indicating that performance during

2013 may resemble that of 2012. As for Solidere’s balance

sheet, the company continues to hold a significant cash balance

of $150M which will be crucial to steer it clear of potential

shocks. Leverage however increased with its Bank Overdraft

and Short term facilities adding $125M to $630M in order to

assist in funding the growth of its rental portfolio.

BLC Bank and the International Finance Corporation

(IFC) Launch “SME Toolkit Lebanon”

According to the Ministry of Economy and Trade, Small and

Medium Enterprises (SMEs) represent 97% of total companies

in Lebanon. However, a small fraction of the latter has sought to

secure intellectual property rights (IPR). In fact, securing an IPR

is a gateway to many economic benefits such as encouraging

Foreign Direct Investment (FDI) inflows into the country,

increasing access to finance and markets, allowing investors to

reap the rewards of their Research and Development (R&D)

investments as well as protecting them from unlawful

competition. In this light, the Ministry of Economy and Trade in

collaboration with the World Intellectual Property Organization

(WIPO) launched a workshop aimed at promoting the use of

IPRs within SMEs while BLC Bank and the IFC collaborated on

“SME Toolkit Lebanon”. The latter is a website giving access to

modern management tools as well as free business training

courses while creating networks between entrepreneurs in

order for SMEs to access new local and international markets

with a more efficient and competitive output.



S A L

RYMCO Financial Highlights ($)

31/03/2012 31/03/2013

% Change

Total Assets 132,914,651 127,358,002 -4%

Total Liabilities

78,711,067 75,384,387 -4%

Net Sales 38,341,719 30,169,794 -21%

Net Income 593,662 666,461 12%

Source: Company Data

RYMCO Posts Net Income of $666,461 as of end

March

During the first quarter of the year, RYMCO’s net income

increased by 12% year-on-year to reach $666,461. The cost of

goods sold decreased by 24% to $25.69M, thus exceeding the

21% decrease in net sales from $38.34M in Q1 2012 to

$30.17M in Q1 2013. The rise in net income and the fall in the

cost of goods sold are partly the result of the 8.55%

depreciation of the Japanese yen from $/JPY 86.79 in January to

$/JPY 94.21 in March. As of March’s end, RYMCO’s assets fell

by 4% year-on-year to $127.36M. This decline was fueled by the

respective decreases of 12% and 14% in notes and accounts

receivables and in the inventory of cars and spare parts to

$42.05M and $38.45M, respectively. However, the value of

property and equipment (net of depreciation) rose by 4% on a

yearly basis to $17.52 while cash and banks increased by 124%

to $11.51M.On the liabilities side, and on a yearly basis,

overdraft decreased by 9% to $19.05M and notes payable fell

by 11% to $42.59M. Total shareholders ‘equity shrunk by a

yearly 4% to reach $51.97M as of end March.



S A L

FFFFOCUSOCUSOCUSOCUS IN BRIEFIN BRIEFIN BRIEFIN BRIEF

Fostering Internet Infrastructure Essential for

Future Growth

Middle East Internet Speed (mbps) & Worldwide Ranking

as of June 2013

Total Active LB Domains up to June 2013

Source: Net Index by Ookla Source: Lebanese Domain Registry

Pioneered by the Personal Computing and Network Services (PCNS) department at AUB, the internet came to life as early as

1993 in Lebanon, among the first within the region. The PCNS department, was then as is now, spearheaded by renowned

internet evangelist Mr. Nabil Bukhalid, who also serves as the LB domain Registrar and Administrator till this day.

Fast forward two decades, Lebanon currently has an estimated download speed of 2.53 mbps and ranks 159th of 182

countries according to international speed gauge netindex.com. Nonetheless, there was a substantial improvement to

previous standings, with the 1 mbps and 2 mbps hurdles being surpassed as of 2011 and 2012 respectively. However, this

was not enough to improve Lebanon’s ranking as it still has a long way to go in order to catch up with global standards.

Having clearly missed out on first mover advantage gains, developing the local internet industry becomes a matter of public

urgency.

Broadly speaking, the size of the IT market in Lebanon as forecasted by Business Monitor International (BMI) for 2013 is

near $364 million. This figure is broken down to hardware sales (62%), software sales (12%), and IT services (26%). BMI

identifies the major impediments to growth within this sector as being poor infrastructure as well as the high cost of

communications. However, the IT market has suffered from far more fundamental issues on top of the obstacles mentioned

by BMI; mainly internet availability.

Following the three day internet blackout which took place in July of last year, the Ministry of Telecommunication (MoT) has

intensified efforts in securing alternative internet sources. At the time, Lebanon had predominantly depended on a single

fiber optic cable; the India-Middle East – Western Europe (IMEWE) which was cut for an extended period of time. Even

though Lebanon benefited from two submarine fiber optic cables; IMEWE and Cadmos – Alexandros, the latter’s effective

capacity could not make-up for the disruption caused by IMEWE. Currently, MoT has increased the effective capacity of

IMEWE and Cadmos – Alexandros from 20 gbps and 3 gbps to 30 gbps and 20 gbps respectively.

Over the last two years MoT has revived the internet sector and laid out the foundations required for its advancement. The

ministry stepped up precautionary measures this year through entering into fresh negotiations with Cyprus for the

construction of Europa, a new fiber optic cable. Not only will Europa act as an alternative internet source but will also serve

as a replacement to the Cadmos – Alexandros cable, expected to expire within the next 5-7 years.

0

500

1000

1500

2000

2500

3000

3500

4000

.COM .EDU .NET .ORG .GOV

14.17

2.531.36

0

2

4

6

8

10

12

14

16

UAE

Qatar

Kuwait

KSA

Oman

Bahrain

Iraq

Jordan

Lebanon

Iran

Palestine

Egypt

Syria

42 62 65 68 104 112 126 140 159 162 166 177 179



S A L

Having secured a national supply we examine the internet distribution mechanism and its associated costs to both

residential and corporate clients. Other customers such as educational institutions and government bodies are excluded

from our analysis mainly due to the uniform subsidized nature of pricing and services provided to these markets.

Internet services in Lebanon are administered by OGERO, a government owned entity which enjoys monopoly power over

local fixed lines. Financially autonomous, OGERO acts as both an internet service provider (ISP) to residential consumers as

well as to over 20 privately held ISP’s. Together, they compete in the residential user market over DSL subscribers.

MoT estimates in its Annual Progress Report 2012 the number of DSL subscribers at 390 thousand as of May 2012, of

which 240 thousand are legal and a burdensome 150 thousand are illegal. Although alternative internet services such as dial

up and wireless are available, DSL represents the majority of subscribers due to its lower cost and superior performance

given the available infrastructure. Of the legal subscribers it is estimated that OGERO controls just under half of the market

share, with the remaining being primarily divided amongst three leading ISP’s IDM/Cyberia, Terranet, and Sodetel.

Prior to the merger of IDM and Cyberia in 2012, each of the four ISP’s had an equal market share. While IDM and Cyberia

still retain separate legal entities, their combination resulted in the formation of the largest provider with an estimated client

base of 60-65 thousand subscribers. Meanwhile Terranet and Sodetel follow with approximately half the number of clients.

When comparing with other countries, the internet industry in Lebanon appears to be rendering basic services at a hefty

charge. Online prices as posted by major ISP’s including OGERO (all excluding VAT) for residential connections vary

marginally according to the different packages. For example in the 1 mbps category, Terranet offers the most attractive

rates with their 10 GB package priced at $23, the equivalent of $2.3 per GB. In the 2 mbps download bracket, IDM is most

competitive with its 20 GB offer priced at $45, i.e. $2.25 per GB. Meanwhile Sodetel offers an in between solution with their

1 mbps “unlimited” connection priced at $25.9, which is in reality capped according to the terms of its “fair usage policy.”

OGERO, the largest residential provider, charges higher prices for the same packages that are offered by the privately held

ISP’s.

While information on residential pricing is somewhat transparent, data related to corporate customers are not as easily

attainable. Looking at the number of registered commercial domains amounting to 2,746 companies as of June 2013 helps

explain why. With a smaller pool of subscribers and OGERO out of the picture, this market tends to be more competitive as

well as highly specialized. However, MoT’s annual report estimates the price of an E1 connection (the equivalent of a 2

mbps connection) at $420 per month. Meanwhile, ballpark prices taken from top ISP’s for a dedicated link with unlimited

traffic for a 1 mbps connection may range between $350 to $700 and for a 2 mbps link between $800 to $1200.

In comparison with the UAE, local internet package prices show the premium users pay in Lebanon to the inferior services

they consume. For example a typical 8 mbps residential connection with unlimited traffic offered by Du costs $55 per

month under the yearly plan. This fiber optic link includes a basic cable TV subscription and covers fixed telephone line

charges with free local calls.

Securing the lowest price only serves as half of the story. Ensuring delivery of the promised connection and being able to

monitor changes in the connection is as equally important. Practically no user has the means of knowing how well their ISP

will perform prior to subscription. With minimal regulatory oversight and accountability more efforts are required to protect

consumer interests.

Vital to numerous sectors across the economy, and a backbone to the fast paced growing digital economy, the internet is

an invaluable resource. As cited by MoT, European studies show that the majority of growth in employment has taken

place within the digital economy. Lebanon, which has a highly skilled labor force and minimal employment opportunities,

cannot afford to miss out on the digital revolution. During these hard times of low economic growth, perhaps it is ideal to

work on the modernization and reform of the communication sector. Investing in the proper infrastructure, providing fiber

optic connections, reducing cost, improving quality all go in the way of unlocking the great potential Lebanon has within the

services sector.

The Lebanon Brief

of 14

Your Investment Reference

S A L

Research Department:

Riwa Daou [email protected]

Mirna Chami [email protected]

Youssef Chahine [email protected]

Marwan Mikhael [email protected]

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