MARKET IN FOCUS: LEBANON: Paris III effect yet to take hold

The Beirut Stock Exchange (BSE) is yet to feel the effects of the Paris III conference because of the ongoing political crisis in the country between the government and opposition parties, according to Beirut-based bankers. Yet plans for a new capital market authority are moving ahead.

In late January, the government secured up to $7,600 million in Paris from international donors, which was widely viewed as a vote of confidence in its ability to tackle its public debt of about $41,000 million and start its reform programme. The conference was also expected to boost investment. However, the benchmark Blom Share Index (BSI) has registered little movement since late January, rising by only 0.1 per centage points from 1,203.13 points on 29 January to 1,204.50 points on 12 March.

'Trading has been very quiet,' says Nabil Chaya, head of capital markets at the local Bank Audi. 'Nobody's writing Lebanon off there is still interest from US and European-based hedge funds, local and Gulf-based investors in the BSE. But investors are getting fed up things keep happening on the political side.' The principal market movers on the BSE remain property developer Solidere the exchange's biggest company in terms of market capitalisation and the country's largest financial houses, Bank Audi, Blom Bank and Byblos Bank. However, all have been trading in a tight price range over the past six months. 'Solidere is trading at around $16, Blom is between $62-63 and Audi is trading at $56-59 a share,' says Chaya.

Until a political solution is found, trading is expected to remain stagnant. 'If you can get the politics back to normal it takes little time for the effects to be noticed on the bourse,' says Fayez Hajj, head of capital markets at Byblos Bank. 'The political situation will remain the final criteria for investors.'

Alongside slow trading in existing shares, new listings have been delayed. Share offerings in national-carrier Middle East Airlines (MEA) and Casino du Liban were expected to be launched on the BSE and on regional exchanges in 2007 but have been shelved for the time being. Unsurprisingly, MEA was hit hard by the July-August war between Israel and Hizbollah last year. The airline was originally to offer up to 25 per cent of its shares and Casino was to offer a 51 per cent stake to investors, held by the local Intra Investment Group.

Yet despite the political upheaval, plans for a new financial law to establish a capital market authority have progressed. Banque du Liban (central bank) currently oversees the regulation of the stock market. The new regulatory body will take over this role as well as seeking to further develop the equity and debt markets. Parliament and the banking sector are reviewing the new law and the bourse is expected to benefit.

Chaya says: 'The new law is a prerequisite to increasing our business we are still at an embryonic stage but our long-term aim is to persuade companies to list in Lebanon and not only in Dubai.'