the lebanon weekly monitor - mofcom.gov.cnimages.mofcom.gov.cn/lb/201311/20131126181139587.pdf ·...

1Week 47 November 18 - November 24, 2013

NOVEMBER 18 - NOVEMBER 24, 2013

WEEK 47

Bank Audi sal - Audi Saradar Group - Group Research Department - Bank Audi Plaza - Bab Idriss - PO Box 11-2560 - Lebanon - Tel: 961 1 994 000 - email: [email protected]

CONTACTS

RESEARCH

Treasury & Capital Markets

Micky Chebli(961-1) [email protected]

Nadine Akkawi(961-1) [email protected]

Bechara Serhal(961-1) [email protected]

Private Banking

Toufic Aouad(961-1) [email protected]

Corporate Banking

Khalil Debs(961-1) [email protected]

Marwan Barakat(961-1) [email protected]

Jamil Naayem(961-1) [email protected]

Salma Saad Baba(961-1) [email protected]

Fadi Kanso(961-1) [email protected]

Sarah Borgi(961-1) [email protected]

Gerard Arabian(961-1) [email protected]

Nivine Turyaki(961-1) [email protected]

LEBANON MARKETS: WEEK OF NOVEMBER 18 - NOVEMBER 24, 2013

The LEBANON WEEKLY MONITOR

Economy___________________________________________________________________________p.2 CPI INFLATION REPORTS A 3.4% ANNUAL RATE CLOSE TO CENTRAL BANK TARGETInflation figures issued by the Consultation and Research Institute (CRI) have been released this week. The 12-month moving average rate registered 3.4%, close to the Central Bank target of 4%. Also in this issuep.3 Gross public debt at US$ 62.4 billion at end-september 2013 p.4 Balance of payments deficit at US$ 676 million in the first nine months of 2013

Surveys___________________________________________________________________________p.5 REAL GDP GROWTH FORECASTED TO RISE FROM 1.3% IN 2013 TO 2.6% IN 2014, AS PER EIUThe Economist Intelligence Unit (EIU) has recently published a report on the Lebanese economy, whereby it expects the pace of growth to pick up from 1.3% in 2013 to 2.6% in 2014.

Also in this issuep.6 Beirut's most expensive retail location in the 37th rank globally, as per Cushman and Wakefield

Corporate News___________________________________________________________________________p.7 FRANSABANK’S NET PROFITS AT US$ 106 MILLION IN THE FIRST NINE MONTHS OF 2013 Fransabank's net profits reached US$ 106.4 million in the first nine months of 2013, down by 0.7% year-on-year.

Also in this issuep.8 Berytech plans to launch tech fund next year p.8 Cimenterie Nationale plans capacity increase

Markets In Brief___________________________________________________________________________p.9 LEBANESE CAPITAL MARKETS UNSCATHED BY SECURITY DEVELOPMENTS Lebanese capital markets were able to contain the latest security developments observed on the local front, with demand and supply forces remaining balanced on the foreign exchange market, the price index registering a small decline on the equity market along with a shy trading activity, and the average yield staying relatively stable on the Eurobond market. In details, the FX market maintained its balanced activity, which kept the Central Bank of Lebanon on sidelines. The LP/US$ interbank rate fell from LP 1,512.50-LP 1,514 at the end of last week to LP 1,505-LP 1,507 at the end of this week. It is worth mentioning that the BDL’s foreign assets reached US$ 35.4 billion mid-November 2013 and covered circa 80% of LP money supply, which spots light on the Central bank’s ability to defend the currency peg. At the level of the stock market, the BSE price index declined by 1.0% within the context of light trading. As to the Eurobond market, the average yield remained almost stable, reaching 5.16%, while the average spread tightened by 6 bps to 328 bps amid a rise in international benchmark yields.



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ECONOMY______________________________________________________________________________CPI INFLATION REPORTS A 3.4% ANNUAL RATE CLOSE TO CENTRAL BANK TARGET

Inflation figures issued by the Consultation and Research Institute (CRI) have been released this week. Over the first 10 months of the year, CPI inflation has reported an aggregate rise of 3.2% year-to-date, which means it is heading firmly to meet the annual Central Bank target. There is actually no volatility in CPI inflation in the country, with the annual inflation rate forecasted at 4% this year by the Central Bank. Technically, the moderation of inflation is tied to the fact that the Lebanese economy is operating at the flat Keynesian side of the Aggregate Supply curve amidst excess capacity and large output gap.

CRI figures for the month of October suggest a 0.22% increase in the price index during the month, or a cumulative increase of 0.8% since October 2012. The 12-month moving average rate registered 3.4%, suggesting a slight decline in annual inflation within the context of the slowdown in the domestic economy at large. As per new IMF figures released last month, Lebanon’s real GDP growth is set to record a low 1.5% rate in 2013 amidst slowing down domestic demand for goods and services.

According to the newly issued CRI report, the breakdown of the year-on-year CPI between October 2012 and October 2013 shows that education is the item that witnessed the most significant rise with 18.2%, followed by recreation with 1.7% and healthcare with 1.2%. All other items have witnessed net price contractions over the period. Apparel dropped by 4.2%, transportation and telecommunications declined by 1.9%, durable consumer goods decreased by 1.3%, food and beverages dropped by 0.9% and housing declined by 0.5%. The item that witnessed the most significant decrease was "other goods and services" that dropped by 11.4%, mainly driven by a 28.1% decline in jewelry prices year-on-year.

It is worth mentioning that the weights of the various spending categories in the basket of goods and services monitored by the Consultation and Research Institute are distributed as follows: 35.4% for food and beverages, 14.4% for transportation and telecommunications, 12.5% for education, 9.8% for health

Source: Consultation & Research Institute

CONSUMER PRICE INDEX



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care, 8.2% for durable consumer goods, 6.6% for apparel, 6.5% for housing, 4.0% for other goods and services and 2.7% for recreation. Those categories are in turn broken down into 45 individual spending items at large.

Finally, inflation rates are set to continue displaying low price increases in the next few years. According to the Global Economic Outlook released by the IMF last month, following a 3.5% projected rate for 2013, end-of-period inflation is set to record a rate of 2.4% in 2014 and a rate of 2.5% for the years 2015 to 2018. _____________________________________________________________________________GROSS PUBLIC DEBT AT US$ 62.4 BILLION AT END-SEPTEMBER 2013

The data published by the Association of Banks in Lebanon showed that the country’s gross debt reached US$ 62.4 billion at end-September 2013, up by 8.2% from the level seen at end-2012. Domestic debt was higher by 8.1% from end-2012 to reach a total of US$ 36.0 billion at end-September 2013. Lebanon’s external debt posted an increase of 8.3% between end-2012 and end-September 2013 to attain US$ 26.4 billion.

The increase in gross public debt during the aforesaid period of 2013 comes along with an increase in public sector deposits at the Central Bank, which edged up by 24.9% from end-2012 and stood at US$ 7.4 billion at end-September 2013.

As to the public sector deposits at commercial banks, they went up by 7.6% from end-2012 to reach US$ 2.9 billion at end-September 2013. As such, net public debt, which excludes the public sector’s deposits at the Central Bank and commercial banks from overall debt figures, increased by 6.2% from end-2012

Sources: Association of Banks in Lebanon, Bank Audi's Group Research Department

GROSS PUBLIC DEBT (US$ BILLION)



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to reach a total of US$ 52.1 billion at end-September 2013, of which net domestic debt amounted to US$ 25.7 billion at end-September 2013, up by 4.1% from end-2012._____________________________________________________________________________BALANCE OF PAYMENTS DEFICIT AT US$ 676 MILLION IN THE FIRST NINE MONTHS OF 2013

Figures released by the Central Bank of Lebanon showed that the balance of payments recorded a deficit of US$ 676 million in the first nine months of 2013, relatively improving from the shortfall of US$ 1,932 million seen in the same period of 2012. The improvement in the balance of payments comes within the context of an 11.9% rise in financial inflows towards Lebanon.

The balance of payments had last recorded a surplus of US$ 2,940 million in the same period of 2010 but then moved to the negative territory in the same periods of 2011 and 2012. It recorded a deficit of US$ 1,539 million in the first nine months of 2011 and another one of US$ 1,932 million in the same period of 2012.

The deficit registered in the first nine months of 2013 is the result of a decline of US$ 2,954 million in net foreign assets of Lebanese banks coupled with a rise of US$ 2,278 million in net foreign assets of the Central Bank of Lebanon.

ACTIVITY OF THE AIRPORT (FIRST 10M OF THE YEAR)

Sources: Rafic Hariri International Airport, Bank Audi's Group Research Department



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SURVEYS____________________________________________________________________________REAL GDP GROWTH FORECASTED TO RISE FROM 1.3% IN 2013, TO 2.6% IN 2014, AS PER EIU

The Economist Intelligence Unit (EIU) has recently published a report on the Lebanese economy. According to the report, the pace of growth will pick up slightly, from 1.3% in 2013 to 2.6% in 2014.

The forecast for 2014 real GDP growth is above the one published by the EIU in September. Growth still depends heavily on the perceptions of domestic political risk, which in turn depend on the events in Syria. In fact, while Arab states are the main consumers of Lebanon's services, tourism and real estate investment would suffer further in case of an extension of the neighboring crisis, dragging down growth.

Fiscal reform, mainly in the form of expansion of revenue collection, will be a low priority as policymakers are preoccupied with the potential for political unrest. The fiscal deficit is expected to decline from 8.4% of GDP in 2013 to 7.7% in 2014. According to the EIU scenario, an improving economy will help to improve the tax revenue and hence, the deficit would decrease to 3% of GDP in 2018.

The report mentions the role of the central bank in maintaining the current currency peg to the US$, while holding a high level of foreign reserves (US$ 39 billion, excluding gold, as of the second quarter of 2013 or around 15 months of import cover), to meet any flight to quality. According to the EIU, the high level of dollarization, in addition to the currency peg to the US$, mean that it is expected that the Lebanese central bank will follow its American counterpart in raising interest rates. As to the stimulus introduced by BDL, the EIU considers that uncertainty over political stability and the still weak economy may limit demand for the central bank's supply of cheaper loans.

Growth will be however driven by strong private consumption, as well as a robust recovery in services' export volumes. Fixed investments are expected to increase in a benign scenario. As to the oil and gas sector, the report mentions the importance of its development as it would help to reduce dramatically Lebanon's imports of expensive energy products. The postponement of the exploration license auction for the second time was a result of political bickering about whether the interim government has the

LEBANON'S ECONOMIC INDICATORS

Sources: The Economist Intelligence Unit, Bank Audi's Group Research Department



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authority to approve the necessary legislation to carry out the auction. This has resulted in delaying the approval of necessary legislation including a model production-sharing contract.

While the external balance will be sensitive to energy price change, an improving economy will help in recovering services' exports. In fact, new IMF data suggest that the country's external deficit fell to just US$ 1.7 billion in 2012 thanks to a sizeable increase in services credits. However, while most indicators in the economy suggest otherwise, the EIU remains cautious about these figures. Hence, Lebanon is expected to record a current account deficit of 6.6% of GDP in 2013, due to the low base effect. According to the EIU, Lebanon's external balances will benefit from the country's role as a transshipment hub for moving goods into Syria. The trade balance will continue to be in deficit throughout the forecast period as the expected investment in offshore projects draws in capital inputs, although lower oil prices in the period between 2016 and 2018 will help to ease import cost growth. _____________________________________________________________________________BEIRUT'S MOST EXPENSIVE RETAIL LOCATION IN THE 37TH RANK GLOBALLY, AS PER CUSHMAN AND WAKEFIELD

According to "Main Streets Across the world 2013/2014", a research publication by Cushman and Wakefield, Beirut 's most expensive location ranked second among its counterparts in MENA cities. At the same time, Beirut has occupied the 37th position globally, regressing by one notch from last year's survey.

This edition of "Main Streets Across the World" provides a detailed analysis of retail property and rental performance across the globe in the twelve months to June 2013. The data for retail rents relates to Cushman and Wakefield's professionals' opinion of the rent obtainable on a standard unit and/or shopping center in a prime pitch of 334 locations across 64 countries around the globe. The information and data provided in this report are based on a comprehensive survey of Cushman and Wakefield's international offices.

According to the report, and as a result of the unstable security situation, foreign direct investment has slowed considerably since the beginning of 2013. In addition, due to the shortage of tourists coming to the country, retail sales were mainly dependant on local consumers. However, occupiers, dependant on local demand, were resilient over this period.

As a consequence, very limited development plans are currently available, mainly focusing on small projects. Meanwhile, vacancy is increasing and adding retail space to the market. While the central district of Beirut houses the majority of luxury brands, there are plans for luxury locations in the city's suburbs, mainly in Hazmieh and Dbayeh areas.

According to Cushman and Wakefield, although demand for luxury space was declining in the past few months, rents in such locations were stable due to the limited supply available.

Lebanon's most expensive retail location, namely ABC Centre in Achrafieh, ranked 37th globally in this year's survey. It was outperformed by locations in each of Stockholm (35th) and Dubai (36th), while it outpaced locations in each of Luxembourg and Santiago (38th and 39th respectively).

Five countries of the MENA region were included in the survey. Beirut followed Dubai and came second regionally, while it outperformed each of Muscat (49th globally), Manama (61st globally), and Amman (64th globally).



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CORPORATE NEWS______________________________________________________________________________FRANSABANK’S NET PROFITS AT US$ 106 MILLION IN THE FIRST NINE MONTHS OF 2013

Fransabank's net profits reached US$ 106.4 million in the first nine months of 2013, down by 0.7% year-on-year. It is noteworthy that net provisions for credit losses moved from US$ 19.5 million in the first nine months of 2012 to US$ 31.0 million in the corresponding period of this year.

Net interest income amounted to US$ 250.2 million in the aforementioned period of 2013, rising by 2.1% from the corresponding period of 2012. Net fee and commission income increased from US$ 41.3 million in the first nine months of 2012 to US$ 41.7 million in the same period of 2013. Net operating income edged up 0.8% to attain US$ 308.9 million in the first nine months of 2013.

Total operating expenses rose by 3.2% year-on-year to US$ 182.8 million in the first nine months of 2013, of which staff expenses reaching US$ 115.1 million, 3.8% higher than those reported in the same period of 2012, and administrative and other operating expenses reaching US$ 55.2 million, 0.5% lower than those of the first nine months of 2012.

Fransabank’s interest margin slightly decreased to 2.36% in the first nine months of 2013 compared to 2.50% in the same period of 2012. Its cost-to-income ratio moved from 53.3% in the first nine months of 2012 to 52.7% over the same period of 2013.

Fransabank’s assets totaled US$ 16.4 billion at end-September 2013, up by 4.1% from US$ 15.8 billion at end-2012. The bank’s return on average assets ratio declined from 0.96% in the first nine months of 2012 to 0.88% in the corresponding period of this year.

Net loans and advances stood at US$ 5.1 billion at end-September 2013, 5.3% higher than the total of US$ 4.8 billion at end-2012. Fransabank’s gross doubtful loans to gross loans ratio increased from 13.9% at end-2012 to 16.2% at end-September 2013. Its loans loss reserves to doubtful loans ratio moved from 88.1% at end-2012 to 79.2% at end-September 2013.

Customers’ deposits amounted to US$ 13.7 billion at end-September 2013, up by 4.5% from US$ 13.1 billion at end-2012. Shareholders’ equity totaled US$ 1,572.8 million at end-September 2013, up by 5.7% from US$ 1,488.6 million at end-2012. Fransabank’s return on average equity decreased from 10.7% in the first nine months of 2012 to 9.2% in the same period of this year.

FRANSABANK'S MAJOR FINANCIAL AGGREGATES

Sources: Bankdata Financial Services, Bank Audi's Group Research Department



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______________________________________________________________________________BERYTECH PLANS TO LAUNCH TECH FUND NEXT YEAR

Berytech plans to launch its second fund by mid-2014, according to the managing director of the Berytech Fund II. The new fund would primarily focus on creative industries in added value sectors, particularly those related to digital content, movies, music, industrial design, fashion, and renewable energies, according to newswires.

The Berytech Fund II is expected to have a greater target size than the one launched in 2008. It targets a capital of US$ 25 million to US$ 35 million intended for new potential innovative startups and SMEs, according to the fund’s managing director. The Berytech Fund I had over US$ 6 million under management.

The fund was planned since early 2013, but its release was postponed due to the economic slowdown and prevailing uncertainties, according to the same source.

The fund is part of the Berytech support ecosystem focused on enterprise development that started more than a decade ago, with the establishment of the Berytech Technology Pole. The fund invests between US$ 100,000 and US$ 1,200,000 per transaction for companies looking for both funding and management, technical, and marketing support to achieve growth.

Berytech was created right at the turn of the century at the Saint-Joseph University to be the first technological pole in Lebanon and the region that provides a favorable environment for the creation and development of startups, through incubation, business support, counseling, funding, networking and company hosting. ______________________________________________________________________________CIMENTERIE NATIONALE PLANS CAPACITY INCREASE

Local cement manufacturer Cimenterie Nationale plans to initiate engineering studies to establish a new production line in its main facility in Chekka. The new production line would replace old equipment and increase production capacity to 5,000 tons of clinker daily, as per newswires.

The chairman of Cimenterie Nationale said that local consumption is still strong, and exports to neighboring countries in the region would surge. Also, the company is equipping its new production lines with high-tech machines to meet demand, and specific standards that limit emissions and reduce power consumption would be implemented.

Cimenterie Nationale would finance this expansion through a bank loan as the cost of the new production line could reach US$ 150 million, according to the chairman of the company. The company delivered around 2.1 million tons of cement to the local market in 2012, a 4.5% drop from 2011. Total cement deliveries to the local market from all local companies reached 5.3 million tons in 2012.

Cimenterie Nationale exports its products mainly to Syria, the northern part of Cyprus, Egypt, and southern Europe. The company’s exports reached 0.45 million tons in 2012.



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CAPITAL MARKETS_____________________________________________________________________________MONEY MARKET: OVERNIGHT RATE REMAINS STABLE AT 2.75%

The money market maintained its regular norms with the local currency liquidity staying quite abundant, which triggered stability in the overnight rate at its low official level of 2.75% set by the Central Bank of Lebanon. As to Certificates of Deposits, the latest figures released by the Association of Banks in Lebanon showed that the weighted average rate on LP CDs stood at 8.79% at end-September 2013, with no change relative to the previous month and compared to 9.28% at end-December 2012. The outstanding CDs portfolio reached LP 35,156 billion at end-September 2013, up from LP 34,720 billion at end-August 2013 and LP 23,073 billion at end-December 2012.

At the monetary aggregates level, figures for the week ending 7th of November 2013 released this week showed a decrease in local currency deposits of LP 108 billion, as a result of a rise of LP 101 billion in LP time deposits and a drop of LP 209 billion in LP demand deposits week-on-week. Deposits in foreign currencies contracted by US$ 89 million. These weekly variations compare to an average weekly rise of LP 19 billion for LP deposits, and an average weekly increase of US$ 84 million for foreign currency deposits since the beginning of the year 2013. Total money supply in its large sense (M4) shrank by LP 139 billion week-on-week.

_____________________________________________________________________________TREASURY BILLS MARKET: NOMINAL SURPLUS OF LP 1.4 TRILLION DRIVEN BY STRONG SUBSCRIPTIONS IN 12-YEAR TBS

The secondary Treasury bills market saw some foreign interest in short-term categories and some local demand for long-term papers.

At the level of the primary market, the auction results for value date 14th of November 2013 released by the Central Bank of Lebanon showed that total subscriptions amounted to LP 1,528 billion and were distributed as follows: LP 20 billion in the one-year category, LP 12 billion in the two-year category, LP 27 billion in the three-year category and LP 1,469 billion in the 12-year category. It is worth mentioning that subscriptions in the 12-year category were made in cash or through swapping existing LP Certificates of Deposits maturing in 2013 and 2014. These compare to maturities of LP 177 billion, resulting in a nominal surplus of LP 1,351 billion. Also, the latest auction’s results (November 21, 2013) showed stability in the average yields on the three-month, six-month and five-year categories at 4.44%, 4.99% and 6.74% respectively.

The latest monthly report released by the Association of Banks in Lebanon showed that the weighted average yield on outstanding LP Treasury bills stood at 6.82% at end-September 2013, up from 6.72% at end-August 2013 and 6.58% at end-December 2012. The outstanding LP Tbs portfolio reached LP 53,358 billion at end-September 2013 as compared to LP 50,629 billion at end-August 2013 and LP 49,334 billion at end-December 2012.

INTEREST RATES

Source: Bloomberg



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TREASURY BILLS

Sources: Central Bank of Lebanon, Bloomberg

_____________________________________________________________________________FOREIGN EXCHANGE MARKET: BDL REMAINS ON THE SIDELINES AMID BALANCED ACTIVITY

The foreign exchange market remained unscathed by the latest security developments, as it maintained its balanced activity and the Central Bank of Lebanon remained on the sidelines throughout the week. The LP/US$ interbank rate rose from LP 1,503-LP 1,506 on Monday to LP 1,508-LP 1,510 on Tuesday, yet fell back to LP 1,505-LP 1,507 at the end of the week. The Central Bank of Lebanon’s latest bi-monthly balance sheet ending 15th of November 2013 showed that foreign assets contracted by US$ 216 million during the first half of November to reach US$ 35,416 million mid-November.

EXCHANGE RATES

Source: Bank Audi’s Group Research Department

_____________________________________________________________________________STOCK MARKET: PRICE INDEX SHEDS 1.0%

Activity remained weak on the Beirut Stock Exchange during this week. The total trading value was limited to US$ 2.6 million as compared to US$ 2.4 million in the previous week and an average weekly trading value of US$ 6.7 million since the beginning of the year 2013. The average daily trading value increased from US$ 591 thousand last week to US$ 629 thousand this week, which resulted into a 6.4% rise in the trading volume index to reach 26.99. As far as prices are concerned, the BSE price index fell by 1.0% week-on-week to close at 106.42, mainly dragged down by drops in Solidere share prices.



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EUROBONDS INDICATORS

Source: Bank Audi’s Group Research Department

AUDI INDICES FOR BSE

Sources: Beirut Stock Exchange, Bank Audi’s Group Research Department

The Beirut Stock Exchange’s weekly performance compared to a small rise of 0.3% in broader Arabian markets’ share prices (as per S&P Pan-Arab Composite Index) and a similar increase of 0.3% in broader emerging markets’ share prices (as per S&P Emerging Market Composite Index).

On a cumulative basis, the total trading value amounted to US$ 207 million during the first ten months of 2013 as compared to US$ 358 million during the corresponding period of 2012. The total turnover ratio, measured by the annualized trading value to market capitalization, stood at 2.5% during the first ten months of 2013 versus 4.5% during the corresponding period of 2012, which spots light on the dull mood governing the BSE.

_____________________________________________________________________________BOND MARKET: OVERALL STABILITY IN AVERAGE MARKET YIELD

The latest security developments left no impact on the Eurobond market’s activity during this week. Also, the market remained unaffected by S&P’s rating cut for the Lebanese sovereign debt from “B” to “B-” that occurred three weeks ago. Some international investors offered papers maturing in 2026 in shy volumes, while other foreign market players show some demand for papers maturing in 2022. In parallel, a local activity was observed on papers maturing in 2017, 2019 and 2023 in relatively small volumes, and on papers maturing in 2026 in medium-sized volumes. Within this context, the average yield remained almost stable, reaching 5.16%, while the average spread tightened by 6 bps to 328 bps amid a rise in international benchmark yields. As to the cost of insuring debt, Lebanon’s five-year CDS spreads expanded from 390-410 bps last week to 395-425 bps this week.



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INTERNATIONAL MARKET INDICATORS

Sources: Bloomberg, Bank Audi's Group Research Department

___________________________________________________________________________DISCLAIMER

The content of this publication is provided as general information only and should not be taken as an advice to invest or engage in any form of financial or commercial activity. Any action that you may take as a result of information in this publication remains your sole responsibility. None of the materials herein constitute offers or solicitations to purchase or sell securities, your investment decisions should not be made based upon the information herein.

Although Bank Audi Sal Audi Saradar Group considers the content of this publication reliable, it shall have no liability for its content and makes no warranty, representation or guarantee as to its accuracy or completeness.

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