A Slender Share

HISTORY

The BSE is the third-oldest exchange in the region, coming after the Alexandria (1883) and Cairo (1903) bourses. The dynamism of the 1950s and 1960s ceased with the outbreak of civil war in 1975 and operations were suspended in 1983. Though resuscitated in 1996, the BSE has failed to account for more than one-tenth the value of Lebanon’s banking sector.

THE WORKINGS

The BSE has 16 registered brokers, the majority associated with key banks operating in Lebanon. Regarding equities and funds, there are 24 listed securities representing 10 companies through different share classes listed on the official market, with another fund listed on the junior market. The market trades from Monday through Friday—aside from official holidays—with a pre-opening session starting at 9.00 am, the bell rung at 9.30 am, and the close following at 12.30 pm. Trading and settlement is done on a T+3 basis through Midclear, which is owned and supervised by the central bank, the Banque du Liban (BDL). In 2000, an amendment to the BSE’s bylaws introduced the trading of global depository receipts (GDRs), investment funds, preferred stocks, priority shares, and a smattering of derivatives.

As of September 2013, the BSE trades 10 Republic of Lebanon Eurobond issues, yet there is a lack of investor confidence in Lebanese debt in light of regional political instability. The Republic of Lebanon June 2025 issue at a 6.25% yield on December 6, 2012 raised $800 million.

THE PLAYERS

The BSE’s powerhouse is the financials, which for the year of 2012 accounted for 75.6% of total market capitalization. They feature: (listed shares market cap. as of end-3Q2013) BLC Bank ($100 million), Bank Audi ($2.1 billion), Bank of Beirut ($320 million), Byblos Bank ($848 million), Banque BEMO ($95 million), and BLOM Bank ($1.8 billion). The industrials contain HOLCIM Liban ($292 million) and Ciments Blancs ($19 million), and real estate, featuring Solidere A ($1.2 billion). Rasamny Younis Motor represents automotive & trading ($38 million); and a single fund, the Beirut Preferred Fund, listed on the junior market.

A DRY PERFORMANCE

Poor liquidity prevents the BSE from becoming a significant force in the local economy. To date, the bourse has simultaneously been both exchange and regulator precluding independent oversight. Ghaleb Mahmassani, Vice-President of the exchange, defined the BSE’s limiting factors as its government organ image, the absence of a recognized watchdog, and the fact that many family-run companies shun transparency, the three collectively strangling IPO issuance and trading volume. Moreover, The Daily Star stated that around 90% of Lebanese financial institutions look to the New York and other international exchanges, as the BSE remains an unappealing investment address among locals.

IN A TUMBLE

According to the BDL, from January to July of 2013 the Beirut index fared the worst among even the most underdeveloped bourses in the region, falling 14.8%, ahead of Libya, which slid 8.4%. Bank Audi research indicates that in the first six months of 2013 the BSE price index fell 4.3%, in contrast to a 6.3% rise in regional stock markets. While the latter bourses rose thanks to real estate, huge infrastructure investments, and oil price stability, the BSE succumbed to regional pressures from Syria sidelining investors. The Arab Spring had drained the BSE of $2 billion in market capitalization between January and September of 2011. The total trading value of the BSE in 1H1013 was just $133 million compared to $229 million the year before. As of end-June 2013, market capitalization had declined 2.1% to $9.77 billion from $9.98 billion at end-2012. The turnover ratio for the first half was also poor at 2.1%, down from 4.7% year on year. Moreover, the annual trading value to market capitalization ratio was at 2.4%, low compared to other emerging markets, and starkly contrasting the roughly 100% level of emerging and international markets. The regional average is 40%. A market capitalization minnow compared to its peers in Cairo ($66 billion), Riyadh ($602 billion), and Dubai ($62 billion), the BSE ($11.5 billion) has nonetheless held appeal for some long-side investors.