The natural habitat of the investment banker is a gleaming tower block, its offices furnished with paintings and state of the art computers. In Beirut the international moneymen have had to make do with more humble surroundings. With much of the city still in ruins, deals are more often struck in temporary offices set up in scruffy hotel rooms.

Despite the often shabby surroundings, Lebanon is being feted as one of the Middle East's most promising emerging markets.

'Investors, unless they are specialists in the region, would much rather talk about Lebanon than, say, Egypt or Jordan,' says one Beirut-based investment banker. 'It's a mystery why, but that's the great Lebanese miracle.'

The launch of the first Republic of Lebanon Eurobond in 1994 is credited with putting the country back on the financial map. The issue, managed by Merrill Lynch, was well oversubscribed and raised some $400 million. Since then, there has been a second $300 million Eurobond, arranged by Banque Paribas Capital Markets, which was fully subscribed just hours after its launch in mid-1995.

Tapping markets The private sector has followed the lead and is tapping international capital markets with relish. Several of the country's largest banks have increased their capital in recent months, including Fransabank and Banque de La Mediterranee. Two deals, in particular, caught the imagination last year and won widespread support from Lebanese, Middle East and international investors - - the private placement on behalf of Byblos Bank and the issue of global depositary receipts (GDRs) by Banque Audi. In January, a Eurobond was closed for Societe Ciments Libanais at $50 million, although the arrangers SBC Warburg said the deal was oversubscribed at the launch. A $20 million convertible bond for Sibline Cement Company is to be completed soon by Banque de La Mediterranee.

The market is maturing and the traditional means of raising finance, from the family or close associates, is being sidelined. For the reconstruction of the Phoenicia and Vendome hotels, for example, the Salha family are reducing their stake and inviting new investors to participate in a private placement to raise some $36 million. A further $45 million is expected to be raised by syndication.

Adding to the revival of Lebanon as a financial centre is the reopening of the Beirut Stock Exchange (BSE), which began trading on 22 January. Since 1994, there has also been an active secondary market for shares in the property development company Solidere, which plans to list on the main bourse in the second half of 1996. The Beirut Secondary Market will continue to operate alongside the BSE, but is expected to focus on trading in bonds and treasury bills.

Several funds that will focus on these prelisted companies, as well as listed stocks at a later date, are already mobilising capital. The most advanced is the International Lebanese InvestmentAccount, launched in mid-December by the London-based Royal Bank of Canada Investment Management and the Beirut finance house Capital Investment Services, with plans to raise some $25 million. The Lebanon Fund, launched by Banque Paribas, has a target of $50 million. A Lebanon country fund, being set up by the Beirut investment house Lebanon Invest (LI) and lead managed internationally by SBC Warburg, has the even more ambitious target of raising $100 million.

'It is the people who get in when it almost appears lunatic to do so, who make the money,' says Dominic Hughes, general manager for the Near East at Flemings, which was rewarded for its quick response to the potential in Lebanon with the successful Banque Audi GDR issue.

Local investment houses are also emerging as a strong force in the market. LI, which began operations in 1994, blazed a trail with the Byblos Bank placement, and is joint lead manager on the Phoenicia hotel deal. In November, LI general manager Marwan Ghandour told MEED that he had mandates for $400 million-500 million in equity and debt, and that the bank was already planning to expand (Banking, MEED Special Report, 22:12:95, page 13).

Following close behind is Middle East Capital Group (MECG), a joint venture whose shareholders include the investment arm of Barclays' BZW and the International Finance Corporation (IFC). The founding shareholders, including three who will become the senior management team, are providing 50.3 per cent of MECG's $30 million capital, with the remainder raised by private placement.

'It is a country going through reconstruction, and there are a lot of companies that need money,' says Ziad-Michael Ayoub, IFC investment officer responsible for capital markets. He says MECG will focus on market making, secondary market trading, underwriting, private placement of debt and equity, minority participation and other corporate finance activities.

Mediterranee Investment Bank, with capital of some $6 million, is the latest venture to join the growing band of new investment units. It is owned by Banque de la Mediterranee, which is owned in turn by Prime Minister Rafiq Hariri through his Luxem bourg-based Mediterranee Investors Group (MIG).

MIG has also set up a financial services company in joint venture with Banque Indosuez - - Indosuez Capital Moyen-Orient (ICM) - to offer project and corporate finance services, as well as capital market operations.

'Our focus today is on project finance, but as the market evolves we will also develop our corporate finance and capital markets activities. But this will take time,' says ICM general manager Fouad Nicholas Trad.

The activity marks an extraordinary turnaround in Lebanon's fortunes, but has also fuelled doubts about there being sufficient business to warrant so much attention.

Local investment houses may be able to survive on the small to medium-size businesses which need new funding, but the opportunities for the international banks are less obvious. The number of large local companies which need fresh capital, and require the expertise of a major international bank to raise it, is strictly limited.

The local capital market has limited potential at this stage. The Beirut Stock Exchange, once a thriving regional stock market, has only three listed companies- two cement producers and a pipe manufacturer. The new investment houses, anxious to generate business, will have to look further afield. 'If you're going to be in this region you've got to look at Syria,' says Flemings' Hughes. Yet Syria has shown itself to be in no hurry to open up, and there can be no guarantee of swift rewards for those setting up in Beirut.

Lebanon can still relish its initial success in reviving Beirut's appeal as a financial centre. 'As a centre for investment banking in the Middle East, I think it will work extremely well,' says Hughes. 'Once Beirut is rebuilt it will have a 21st century infrastructure. Whatever places like Dubai might say, no one will be able to match that in the Gulf or even the Mediterranean.'

It is not only the physical infrastructure which attracts. 'There is the will to succeed and it is a core part of the government strategy, where other governments in the region are still ambiguous about the role of foreign investment,' says Angus Blair, head of research for the Mediterranean region at Baring Securities. ING has gone further than most foreign institutions and has opened a fully-fledged investment operation in Beirut, ING Barings.

Lebanon seems to be defying the conventional wisdom that 15 years of bloody conflict and economic developments elsewhere had erased its potential as a financial centre for ever. Its reputation for financial security and competence seems not have suffered. Beirut is still far from an investors' paradise, but the international moneymen seem persuaded that the future holds many bright prospects.