TBY talks to Dr. Ghaleb Mahmassani, Vice-President of the Beirut Stock Exchange, on attracting more companies, improving the trading platform, and prospects for IPOs in 2011.
TBY How has the Beirut Stock Exchange (BSE) contributed to Lebanon’s economy over the past decade?
DR. GHALEB MAHMASSANI Lebanon underwent a large-scale, multi-billion dollar reconstruction program over the past two decades, designed to restore Lebanon’s former position as the financial and commercial capital of the Middle East. In addition, the Lebanese economy is characterized by its openness to trade in goods and services, a flexible exchange rate regime that accommodates external shocks, the absence of controls on capital flows, an unconditionally convertible currency, and a liberal and laissez-faire approach to economic policies. Moreover, the country has a tradition of having a stock exchange—the BSE—which is also called the Beirut Bourse. The BSE was established in 1920 and is considered to be one of the oldest stock exchanges in the region. Even though the reopening of the BSE in 1996 following the heavily militarized conflict was not that easy after a 13-year closure, one of our major priorities was to reorganize and modernize the regulations of the stock exchange and to make the BSE ready to play a major role in the development of the country, repatriating overseas Lebanese capital, channeling international portfolio investments, and providing an important source of funds in the short, medium, and long term that will be used for this purpose. In fact, the combined value of the securities listed on the BSE (excluding Lebanese Republic Eurobonds), rose from approximately $0.386 million in January 1996 to $11.3 billion at the end of June 2011. The number of authorized brokers rose from 5 to 16 and the number of listed instruments rose from 3 to 21 (excluding Eurobonds) over the same period.
How are you looking to attract more local companies to list on the exchange?
Lebanese businesses, both in the industrial and service sectors, are in their vast majority small family-owned firms, and therefore personal relationships between individual partners tend to prevail over other forms of interaction. Likewise, the Lebanese economy can be labeled as an “overdraft” economy, in which the activities of the major businesses are financed through bank credit. However, as a BSE Committee member, we are trying to correct the current situation by giving increasing attention to educational and promotional programs that aim to attract and convince medium-sized Lebanese companies to list their shares on the BSE and to increase their capital through the broadening of the shareholder base by highlighting the advantages and opportunities of financing through the stock exchange. On the other hand, we have worked closely with the Ministry of Finance and the Lebanese government to provide tax incentives for companies that list their shares on the BSE and to limit the distribution tax for listed companies to 5% instead of the 10% applied to other non-listed companies.
What are the conditions for being listed on the BSE?
Securities listed on the BSE are placed under one of three market sections depending on obligations undertaken by issuers and their respective levels of risks: the official market, the junior market, and the over-the-counter (OTC) market. Admission to any of these markets is granted by the BSE Committee after examination of an application file. It is important to note that the conditions for being listed on the BSE are the same for Lebanese companies as well as for foreign companies.
How can you entice companies to list on the BSE instead of going to other markets, like Dubai?
Regional stock exchanges do not offer favorable terms over international exchanges, in my opinion. To become an international stock exchange we need to attract international companies to list on the BSE. Currently, we have cross listings with London and Luxembourg for Global Depository Receipts (GDRs). Companies that are listed on the London Stock Exchange or Luxembourg Stock Exchange have a greater outreach and more market opportunities to attract foreign investors.
What new financial instruments are you looking to introduce?
This will be left to the new market regulator, but we would certainly like to have more equity shares as well as new financial instruments. We don’t like to have purely engineering structured instruments. Fortunately, the Banque du Liban has prevented these types of instruments, and that’s why we were kept out of the financial crisis in 2008.
What have you done to improve the trading structure and what is the significance of online trading?
After the reopening of the BSE in 1996 we have dedicated ourselves to providing our customers with high-quality financial services. In serving this purpose we have moved from a fixed to a continuous trading system by implementing the NSC-UNIX trading system used and developed by NYSE-Euronext. We recently adopted an online trading system and developed an up-to-date website that provides an easy-to-use engine for investors searching for market data and listed companies’ information. Likewise, we equipped a disaster recovery site outside of Beirut to be used in case of emergency.
What changes would you like to see for the BSE in terms of supervision?
A new law for Lebanon’s financial markets has been recently approved by the parliament. The law takes into consideration the creation of a higher financial authority that oversees the regulation of the creation of various types of financial markets according to recognized international standards. The newly established authority will have sufficient independence in the exercise of its functions from any party involved in trading activities on the stock exchange. Likewise, the new law noted the necessity of separating the function of trading from other functions through the establishment of a separate body to oversee stock exchanges and financial markets in Lebanon, where the membership of the new body does not include the issuers of financial instruments or brokers at the stock exchanges.
The new body will be entrusted to license the establishment of exchanges or financial markets in Lebanon and the validity of market supervision and control. Likewise, the body will be entrusted to impose the general regulatory framework for the listing of financial instruments and to identify the publications and information to be provided for an initial public offering (IPO).
Currently, the Ministry of Finance oversees the activities of the BSE; however, the new Financial Market Law takes into consideration the privatization of the BSE within a one- to two-year period from the date of the establishment of the new Financial Market Authority.
What prospective IPOs do you see for the BSE in 2011?
During 2011 the Beirut Stock Exchange decided to accept the listing of additional shares issued by BLC Bank, Banque BEMO, as well as additional GDRs related to Bank Audi-Audi Saradar Group. Likewise, the BSE decided to accept the listing of the newly issued preferred shares class 2011 issued by BLOM Bank, as well as many issues of Lebanese treasury Eurobonds. On the other hand, Middle East Airlines, a private company owned by the Central Bank of Lebanon, has decided to list 25% of its share capital on the BSE; however, its management hasn’t launched an IPO yet, and it has not taken any concrete measures to implement it so far.
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