From his 11th floor office in the Gefinor Centre in West Beirut, Marwan Ghandour has a fine view of Jounieh bay and the foothills of Mount Lebanon. It is a tranquil scene made all the more striking by the noise and commotion on the streets below as Beirut bounces back from 15 years of civil war.
Yet, the general manager of Lebanon Invest (LI), the investment and financial services company, has little time to enjoy the panoramic view. When he does have a spare moment, Ghandour is more likely to contemplate the empty shell of the Phoenicia hotel, which stands below and is soon to be refurbished with funds being raised by LI. Or he may glance at the adjacent Vendome hotel, part of the same renovation project and already nearing completion. Out of sight, but never out of mind, LI is raising new capital for several local banks, and its management team is busy creating vehicles that will secure a steady flow of funds for small but hungry local corporates. It has been a busy year for this young institution.
History and structure: LI was set up in August 1994 to meet the needs of a local business community short of capital and starved of long-term financing. ‘We primarily came to fill in a gap in the Lebanese financial system, to offer investment banking services in a system previously dominated by commercial banks,’ says Ghandour. While the country has witnessed a steady inflow of capital for the past five years, most has been drawn into the real estate sector. This, says Ghandour, is due to the lack of vehicles or institutions to direct it towards more productive sectors. Furthermore, local banks had their capital base all but wiped out by inflation during the civil war years and have only been in a position to provide short-term lending.
The initiative for the new investment company originated with the London- based Capital Trust, which became one of the founding shareholders along with Banque Audi and Ghandour. Capital of $26.25 million was raised by mid-1994, most of it from Saudi Arabia and Kuwait. The list of some 60 founding shareholders reads like a who’s who of Arab business, from Audi to Sabbagh.
The management team consists of about 10 professionals based in Beirut, most with international experience. To ensure the institution could attract high calibre staff and could match the international competition, the management team enjoys a handsome profit-related pay package.
Marwan Ghandour is US educated and returned to Lebanon from Saudi Arabia, where he worked as a consultant. Between 1990-1993, he was vice-governor of Banque du Liban (central bank).
Strategy: With this mixture of international and local expertise, the bank has devised a strategy to draw capital into Lebanon and the region. Real estate is one of the three main targets, although it has turned out to be a less attractive area for business than expected. ‘We feel now that real estate is not really the market we imagined it would be,’ says Ghandour. ‘However, we are pursuing and have been mandated for a number of project financing deals.’ These include the $90 million Phoenicia and Vendome hotels project, which will involve raising $45 million from international and local banks, with a further $35 million to be raised through a private equity placement. The balance will be covered by contractor financing. LI has also won the mandate for financing the Beirut Sports City commercial and leisure complex, which is worth $195 million. The development is a build-operate-transfer (BOT) project and the intention is to list it on the Beirut Stock Exchange.
LI also intends to act as an intermediary in the local treasury and capital markets. It will play a pioneering role as there are few investment vehicles in existence as yet and an equally limited supply of securities in which to invest. When trading does eventually start on the Beirut bourse it will have no more than five listed companies. Nevertheless, LI already has a separate research company, has begun issuing regular reports on the Beirut property development company Solidere, and is expanding its coverage to include local banks and corporations.
A $100 million fund is also in the pipeline and aims to attract international capital to invest in small and medium-size companies that will be early candidates for listing on the Beirut bourse. The launch of the fund, to be co-led by SBC Warburg, is expected by the end of the first quarter of 1996. ‘Primarily the objective of the fund is to be a catalyst in the system to take a large number of companies public in the next few years and play a role in the development of the capital market,’ says Kareem Sakka, corporate finance officer.
Corporate finance activity is a focus for LI’s efforts and includes all sectors of the economy. ‘We feel the banking sector is a very positive area, for recapitalisation and consolidation,’ says Ghandour. LI has already successfully raised the capital of Byblos Bank, and is also at an early stage in similar deals with other banks, including a possible merger. ‘Not only was the (Byblos) deal oversubscribed, but most importantly, our approach became a benchmark in the system,’ Ghandour says.
The light industrial sector is also seen as a growth area. With about $6,000 million in imports each year, LI sees plenty of room for import substitution. Another fund, being set up in conjunction with the European Investment Bank (EIB), will provide equity to small and medium-size businesses that are active in production rather than services. The EIB is providing ECU 3 million ($4 million), which will be matched by LI.
LI is also seeking to develop a regional role, but is moving cautiously. Several proposals have already been received for mainly industrial projects in Syria, but LI will only expand into regional projects once it is a well-established institution in Lebanon.
Performance: Lebanon has proved fertile ground for business after only one year of operations. ‘We now have mandates for $400 million-500 million in equity and debt, and these are just the ones we’ve chosen,’ says Ghandour. ‘The volume of work now is far beyond our resources, and we need to expand. We really need to address the bottleneck by attracting more people.’
LI plans to raise the number of professional staff to about 20, and to double its capital in 1996. ‘We have got to increase capital to give us some greater underwriting capacity,’ says Ghandour. The bank may also consider a local listing.
Processing deals has proved a slower process than anticipated, however, and LI has fallen slightly short of its initial profit target of $1.4 million for 1995. However, fees are expected to start flowing in 1996.
Outlook: LI has so far enjoyed a virtual local monopoly, which will disappear if the list of foreign and local institutions moving to Beirut grows. However, LI is confident it can fend off the competition, and may even benefit from the greater depth it would bring to the market. ‘We are dying to have competition,’ says Bassam Yammine, senior corporate officer.
Perhaps more relevant to the bank’s future is the continued pace of Lebanon’s reconstruction programme and growing investment opportunities in the Levant area. There are no signs yet that Lebanon is losing its ability to attract capital inflows, which in 1994 were some $4,000 million. LI, it seems, has positioned itself well to act as a professional channel for those funds.